Summary: ADP payrolls up 89,000 in September, less than consensus expectations; August number revised up by 3,000; ANZ: confirms slowing US labour market, smallest rise in 33 months; US Treasury yields fall noticeably; expectations of Fed rate cuts in 2024 harden; positions up in small, medium businesses, down in large ones; slightly over 90% of gains in services sector, led by leisure/hospitality sector.
The ADP National Employment Report is a monthly report which provides an estimate of US non-farm jobs in the private sector. Publishing of the report began in 2006 and its figures exhibited a high correlation with official non-farm payroll figures even though large differences arose in individual months. A major revamp of the ADP report took place in mid-2022, materially altering the data. However, month-on-month changes in the non-farm payroll data and ADP series are still highly correlated.
The latest ADP report indicated private sector job numbers increased by 89,000 in September, less than the 150,000 increase which had been generally expected. August’s rise was revised up by 3,000 to 180,000.
“The ADP data confirm the labour market is slowing and the September gain was the smallest rise in 33 months,” said ANZ economist Madeline Dunk. “The ADP also reported that median wage growth slowed to 5.9%, its 12th consecutive monthly decline.”
US Treasury yields fell noticeably on the day, especially at the short end of the curve. By the close of business, the 2-year had shed 10bps to 5.05% while 10-year and 30-year yields both finished 7bps lower at 4.73% and 4.86% respectively.
In terms of US Fed policy, expectations of a lower federal funds rate in the next 12 months hardened. At the close of business, contracts implied the effective federal funds rate would average 5.38% in November, 5bps more than the current spot rate, 5.41% in December and 5.425% in January. September 2024 contracts implied 4.965%, 36bps less than the current rate.
Employment numbers in net terms increased in small and medium-sized businesses while contracting in large enterprises. Firms with less than 50 employees gained a net 95,000 positions, mid-sized firms (50-499 employees) added 72,000 positions while large businesses (500 or more employees) accounted for 83,000 fewer positions.
Employment at service providers accounted for slightly more than 90% of the total net increase, or 81,000 positions. The “Leisure and hospitality” sector was the largest single source of gains, with 92,000 more positions, while the Professional and business services” sector was the month’s largest single source of losses, with 32,000 fewer positions . Total jobs among goods producers increased by a net 9,000 positions.
Prior to the ADP report, the consensus estimate of the change in September’s official non-farm employment figure was +170,000. The non-farm payroll report will be released by the Bureau of Labor Statistics this coming Friday night (AEST), 4 October.