U.S. private-sector hiring slowed more than expected in August, according to Automatic Data Processing, ahead of the government's release of nonfarm payrolls for the month.
Private employers added 38,000 jobs in August from the previous month, ADP said on the 2nd, falling short of both market forecasts of 48,000 and the revised July figure of 46,000. Hiring continued to expand, but the August gain was the smallest since January.
The reading is in line with the July nonfarm payrolls report from the Labor Department's Bureau of Labor Statistics, which delivered what analysts called a jobs shock. Nonfarm payrolls fell by 23,000 in July from the prior month, well below market expectations for an increase of 80,000, the BLS said. Payrolls for May and June were also revised sharply lower, down 66,000 and 37,000 respectively.
Notably, most of the hiring was concentrated in three sectors. Education and health services led with a gain of 45,000, driven by health care. Leisure and hospitality added 16,000 jobs and construction 12,000. Manufacturing, by contrast, shed 17,000 positions and professional and business services lost 16,000. Natural resources and mining as well as trade, transportation and utilities also declined.
Because ADP's figures are read as a leading indicator for the nonfarm payrolls report due on the 4th, the odds have risen that August government data will also show a slowdown. The market expects nonfarm payrolls to swing to a gain of 53,000 in August.
The numbers also complicate the calculus at the Federal Reserve. Fed Chair Kevin Warsh struck a hawkish tone at the recent Jackson Hole meeting, saying inflation is worrying, but the weakening labor market raises the risk that further tightening would tip the economy into recession. The Fed now faces the difficult task of containing inflation while sustaining employment. Still, sticky inflation — with prices holding up as service fees and housing costs rise — is one factor keeping the door open to a rate increase in September.
Following the ADP release, the probability of a quarter-percentage-point rate increase at the September meeting stood at 66.2% on the CME FedWatch tool, slightly lower than 67.2% a day earlier but far above 36.6% a week ago.
