ADP Employment Report Raises Labor Market Concerns: Layoffs Increase, Fed Rate Cut Bets Rise

ADP Report Signals Labor Market Softening

Newly released ADP data is raising concerns about a potential slowdown in the labor market, particularly following recent layoff announcements from several prominent companies.

Layoffs on the Rise

According to the ADP report released on Tuesday, US companies averaged 11,250 layoffs per week in the four weeks ending October 25. This figure suggests a softening of the labor market in the latter half of the month compared to the first half.

Largest Job Decline Since March

Cumulatively, the month saw a decrease of 45,000 jobs (excluding government workers), marking the largest monthly job decline since March 2023.

Increased Bets on Fed Rate Cut

Following the data release, money markets increased their bets on a Federal Reserve rate cut, pricing in a greater than 60% chance of a rate cut next month.

Layoff Announcements Spark Concern

The data comes as several companies have announced layoff plans in recent weeks. A report from Challenger, Gray & Christmas Inc. showed that employers announced the most October job cuts in over 20 years, sparking concerns about the health of the labor market.

Government Data Delays

The longest government shutdown in US history has delayed the release of key economic data, such as the September and October jobs reports. Investors have been relying on alternative indicators like the ADP report to fill the data void.

ADP Updates

ADP announced last month that it would now release a four-week moving average of the change in total private sector employment, with reports issued only three times per month (not in the week the monthly report is released).

Preliminary and Subject to Revision

These figures are preliminary and subject to revision as new data is added. The latest monthly ADP report released last week showed that U.S. private employers added 42,000 jobs in October after two straight months of declines.

Growth Not Broad-Based

While the growth was welcome, it wasn't broad-based. Education and health services, as well as trade, transportation and utilities, led the growth. In professional business services, information, and leisure and hospitality, employers cut jobs for the third straight month.

Future Outlook

The report added: “Despite the muted increase, October’s numbers are still welcome news, providing a degree of comfort to many economists and investors. These market watchers generally agree that job growth will remain subdued for some time in the future as labor demand softens and supply remains scarce.”

A New Break-Even Point

ADP Chief Economist Nela Richardson said economists are looking for a new break-even point as both sides of the labor market, supply and demand, are slowing. That's the minimum number of new jobs the economy needs to add each month to keep the unemployment rate stable. Looking ahead, the break-even point is no longer likely to be a stable constant, but more likely to be constantly changing.