Summary: ADP payrolls up 177,000 in August, less than consensus expectations; July revised down by 12,000; NAB: another piece of evidence of a cooling US labour market; positions up in small, medium and large businesses; little over 85% of gains in services sector, led by education/health services sector.
The ADP National Employment Report is a monthly report which provides an estimate of US non-farm workers 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 employment increased by 177,000 in August, less than the 200,000 increase which had been generally expected. July’s rise was revised down by 12,000 to 312,000.
“For the record and ahead of the non-farm payrolls release on Friday, overnight the ADP employment data release provided yet another piece of evidence of a cooling US labour market,” said NAB senior FX strategist Rodrigo Catril.
US Treasury yields fell significantly on the day, especially at the short end of the curve. By the close of business, the 2-year had shed 15bps to 4.90%, the 10-year yield had lost 9bps to 4.12% while the 30-year yield finished 5bps lower at 4.23%.
In terms of US Fed policy, expectations of a lower federal funds rate in 2024 firmed. At the close of business, contracts implied the effective federal funds rate would average 5.34% in September, slightly above the current spot rate, and then average 5.355% in October. December futures contracts implied a 5.445% average effective federal funds rate while August 2024 contracts implied 4.795%, 53bps less than the current rate.
Employment numbers in net terms increased in small, medium-sized and large businesses. Firms with less than 50 employees gained a net 18,000 positions, mid-sized firms (50-499 employees) added 79,000 positions while large businesses (500 or more employees) accounted for 83,000 more positions.
Employment at service providers accounted for a little over 85% of the total net increase, or 154,000 positions. The “Education and health services” sector was the largest single source of gains, with 52,000 more positions. Total jobs among goods producers increased by a net 23,000 positions.
Prior to the ADP report, the consensus estimate of the change in August’s official non-farm employment figure was +168,000. The non-farm payroll report will be released by the Bureau of Labor Statistics this coming Friday night (AEST), 1 September.