US Private Payrolls Unexpectedly Fall, Boosting Fed Rate Cut Bets
ADP report shows a surprise loss of 32,000 jobs in November, signaling a rapidly cooling labor market and increasing investor wagers on a Fed policy pivot.
The U.S. private sector unexpectedly shed jobs in November, providing the clearest sign yet of a cooling labor market that sent a jolt through markets and intensified bets that the Federal Reserve will soon pivot to cutting interest rates.
Private payrolls fell by 32,000 last month, a stark reversal from the downwardly revised 10,000 gain in October, according to the ADP National Employment Report released Wednesday. The figure fell well short of economists' forecasts, which had anticipated a modest gain of 10,000 jobs, marking the third monthly decline in the last four months.
The weakness was concentrated in the service-providing sector, particularly in professional and business services, which lost 26,000 positions, and the information sector, which cut 20,000 jobs. Manufacturing also continued to struggle, shedding 18,000 positions. Pockets of resilience remained, with education and health services adding 33,000 jobs and the leisure and hospitality sector expanding by 13,000.
Markets immediately interpreted the weak data as a green light for the central bank to ease its restrictive monetary policy. In what has become a familiar "bad news is good news" scenario for investors, U.S. stock futures ticked higher and Treasury yields fell as traders ramped up wagers on a forthcoming rate cut. The probability of the Fed announcing a quarter-point rate reduction at its next policy meeting jumped, with traders pricing in an approximately 88% chance, according to data from the CME FedWatch Tool.
"The November jobs data is a clear signal that the cracks appearing in the labor market are widening," said one chief economist in a note to clients. "This report likely solidifies the dovish case at the Fed and shifts the focus from 'if' they will cut to 'when.'"
The Federal Reserve has held interest rates at a multi-decade high in its campaign to stamp out inflation, and officials have indicated they need to see sustained evidence of economic cooling before considering a policy change. A softening job market is a critical piece of that puzzle, as it typically eases wage pressures and, by extension, inflation.
While the ADP figures are a significant data point, investors and policymakers will now turn their attention to the government's more comprehensive Bureau of Labor Statistics (BLS) employment report due Friday. That report will be crucial in confirming whether the weakness seen in the ADP data reflects a broader economic trend, potentially cementing the case for a central bank pivot early in the new year.