Unfortunately, the new ADP Employment Change report has some disturbing news for those of us watching the U.S. job market. Between August and September, the economy shed 32,000 workers. This is a big reversal, as it comes in stark contrast to economists’ projections for adding 50,000 new jobs for the month. The ADP Research Institute puts together this monthly report and has re-benchmarked previously reported employment numbers. Namely, that only 54,000 jobs were actually added in August plus another, as a net negative, signifying an added 3,000 layoffs that month.
Because of this, the timing of this report is essential. It sets the tone for the Bureau of Labor Statistics’ monthly Nonfarm Payrolls release — something that we’ll look forward to in exactly two days from today. The Nonfarm Payrolls is widely seen as the “biggest” employment indicator, but the ADP Employment Change report is quite closely related. This most recent data has sent shockwaves through economic analysts and policymakers alike.
ADP Employment Change Report Overview
The ADP Employment Change report is a gauge of the American labor market, measuring employment trends nationwide each month. In September, the report brought an abrupt about face—salient employment numbers suddenly plummeted. They resulted in a real life decrease of 32,000, when economists had expected the opposite—an increase of 50,000. This jarring contrast begs the question, how resilient is our labor market?
In August, that first estimate was for a net increase of 54,000 jobs. That number has now been revised down significantly after then reporting that 3,000 employees were laid off in that month. Such changes have been known to dramatically affect economic outlooks and business and consumer confidence all around.
It’s no surprise that economists don’t take the ADP report all that seriously. It tends to lead with very high correlation to the Nonfarm Payrolls data from Bureau of Labor Statistics. The upcoming release is keenly awaited by stakeholders who rely on these figures to gauge economic health and labor market dynamics.
Implications of Job Losses
The surprising job losses suggested by the ADP report could be an early warning sign of more serious trouble ahead for the economy. The government is in a perpetual fiscal puzzle, particularly in the wake of the recent shutdown. As a result, their disenfranchisement magnifies the fragility of the job market. White House press secretary Karoline Leavitt commented on these circumstances, stating:
“Unfortunately, because the Democrats shut down the government, the president has directed his Cabinet and the Office of Management and Budget to work with agencies across the board to identify where cuts can be made, and we believe that layoffs are imminent.”
This comment highlights possible consequences for employment as the administration seeks to operate the federal government more like a resource-scarce business.
The impacts of these job losses might reach far beyond just the immediate unemployment rate. A slowdown leads to less new jobs created, which slows new consumer spending and depresses overall economic growth. Analysts will be looking closely to see if these trends continue or even increase in future months.
Upcoming Data Releases
The U.S. Department of Labor will be releasing Initial Jobless Claims data for the week ending September 27 today. Yet, unlike any previous release, this one has been thrown into flux by the recent government shutdown, leaving its final release—and indeed its final contents—up in the air. Expand picture this–putting vision into practice. This new data, along with the Nonfarm Payrolls due out this Friday, will paint a clearer picture of where we stand in the labor market.
Moreover, the ADP report has a history of inaccurately presaging the Nonfarm Payroll outcome. Analysts are excitedly awaiting to see how these massive job losses will affect the upcoming statistics. Investors and policymakers will closely examine all these figures for clues about economic strength and future Fed policy actions.
As uncertainty looms over employment figures and government actions, investors are advised to stay informed about upcoming reports that could further illuminate trends in the job market.