The U.S. labor market showed clearer signs of cooling in September as private employers unexpectedly cut jobs, according to the latest ADP National Employment Report. Private businesses shed 32,000 jobs last month, a stark contrast to the consensus expectation of a 51,000 increase. This marks the largest decline in private payrolls since March 2023 and represents the first consecutive monthly job losses in the private sector since 2020. The numbers also follow a downward revision for August, where preliminary figures shifted from a gain of 54,000 jobs to a loss of 3,000. These results underscore an environment where employers are growing cautious amidst economic uncertainties.
The job cuts were concentrated in the service-producing sector which lost 28,000 positions. Within this segment, leisure and hospitality were hit hardest with roughly 19,000 fewer jobs, followed by professional and business services shedding 13,000 roles. Financial activities also saw a 9,000 decrease, and trade, transportation, and utilities declined by 7,000 jobs. In contrast, education and health services added 33,000 jobs, partially offsetting the losses elsewhere. The goods-producing sector also contracted by 3,000 jobs, with declines in construction and manufacturing sectors.
This data arrives just before the U.S. Labor Department’s official September non-farm payroll report, the release of which faces uncertainty due to the government shutdown beginning October 1st. The shutdown will likely delay this high-profile monthly employment report, which market watchers had been closely anticipating for clearer signals on the labor market’s trajectory. Consensus among economists had been for a modest 52,000 job gain in September, slightly above August’s 22,000 but still reflective of a labor market that has cooled compared to earlier in the year.
The caution visible in the ADP private payroll figures matches other indicators of a softening job market. Job openings and hiring rates have been stagnant or declining in recent months. August saw a drop in job openings in certain sectors such as construction and federal government roles, while hiring slowed notably in trade, transportation, utilities, and accommodation and food services. The layoffs rate has remained relatively stable but overall hiring fatigue is apparent as employers opt to retain existing workers rather than expand headcount. This cooling in job creation could influence the Federal Reserve’s policy decisions, as employment risks begin to outweigh inflation concerns in shaping interest rate moves.
Wage growth showed some resilience despite the pullback in jobs. Pay increases for job holders remained steady at approximately 4.5% annually, while wage growth for those changing jobs eased slightly to 6.6% from 7.1% in previous periods. This suggests companies remain focused on controlling labor costs amid cautious hiring, though the tightness in the labor market still supports solid rises in wages overall.
One structural factor influencing the labor market is a shift in the number of jobs needed to keep the unemployment rate stable. Due to demographic changes, including a wave of retirements and tighter immigration policies, experts now estimate that the U.S. economy needs to add about 40,000 jobs monthly just to maintain the current unemployment rate. This is a significant decrease from the roughly 100,000 needed in 2024. As a result, the economy might experience periods of weak or even negative job growth while the unemployment rate remains relatively stable at historically low levels, around 4.3% to 4.5%.
Looking ahead, the opportunity to draw firm conclusions from the September non-farm payrolls may be delayed until after the government reaches a funding agreement that ends the shutdown. The absence of this official dataset complicates efforts for policymakers, investors, and analysts to gauge the labor market’s health with full clarity. In the meantime, privately-sourced data like the ADP report will garner more attention as signal points for how the job market is evolving in a climate marked by slowed growth and cautious hiring.
Though the labor market is showing signs of losing momentum, the resilience in some sectors and wage growth trends suggest the economy is not facing an immediate collapse. Instead, it is moving toward a more measured pace of job creation amid ongoing economic challenges. This nuanced picture will be crucial for decision-makers navigating the delicate balance between encouraging employment and managing inflation pressures in the months ahead.
