How Today’s ADP Jobs Report Makes a Fed Rate Cut More Likely

The Bureau of Labor Statistics won’t release October and November employment information until Dec. 16. (Patrick T. Fallon/Bloomberg)

Key Points

• Private sector payrolls decreased by 32,000 jobs last month, contrasting with economists’ expectations of a 40,000 job gain.
• The November job loss represents a reversal from October’s revised gain of 47,000 jobs, indicating a slowdown in hiring.
• The ADP report is crucial for the Federal Reserve’s upcoming meeting due to delays in official government employment data.

Job growth in the private sector slid last month, which will likely bolster support for another interest-rate cut at the Federal Reserve’s policy meeting next week.

The U.S. shed 32,000 jobs from private payrolls last month, according to the ADP National Employment Report released Wednesday morning. The November job losses are a significant reversal from October, which saw employers gain a revised 47,000 jobs.

Wednesday’s data, which is based on over 26 million U.S. employees’ payroll data, upended expectations. Economists surveyed by FactSet anticipated that the U.S. private employers would add 40,000 jobs in November, though the Bloomberg consensus forecast was for just a 5,000 monthly gain.

ADP’s November labor data takes on an outsize importance, as it is one of the few major employment indicators that Fed officials will have on hand to evaluate ahead of the Federal Open Market Committee meeting next week. The Bureau of Labor Statistics won’t release October and November employment information until Dec. 16 due to delays in collecting and processing the data during the government shutdown.

“The modest fall in the ADP payrolls measure in November, coming on the back of a similar message from the Fed’s Beige Book, should be enough to persuade the FOMC to vote for another cut next week,” writes Stephen Brown, deputy chief North America economist at Capital Economics.

Odds of a rate cut at the FOMC’s December meeting were at roughly 89% after the ADP report, according to the CME FedWatch.

Brown notes that when looking through the month-on-month volatility, labor data seems to indicate that employment conditions are still fairly stable rather than deteriorating markedly.

November’s private sector slowdown was broad-based, but it was led by a significant pullback among small businesses at a time when employers typically retain workers heading into the holidays. Businesses with fewer than 50 employees saw the biggest losses, shedding more than 120,000 jobs in November. Medium and large employers, however, experienced a net increase in hiring.

“When you look historically, the labor market is not weak—but it is weakening, and the first to crack is small establishments. So I see them as a canary in the coal mine,” says Nela Richardson, ADP’s chief economist.

But Richardson says that job losses at small businesses do not automatically translate into larger firm losses. “It’s evident that medium and large firms are better positioned to weather what’s going on,” Richardson says. “It’s too early to call it a recession. It’s not broad-based enough to call it a recession, but it is a point of weakness and a point of concern, and it could grow to something.”

Looking at specific sectors, the combined education and health services sector managed to add 33,000 jobs in November, ADP reported. But manufacturing, professional and business services, information, and construction sectors reduced employee head count last month.

Leisure and hospitality did add 13,000 positions in November, which Richardson called out as a signal of consumer health since these industries are consumer-facing. She noted that higher-income consumers, helped by strong home equity and rising stock prices, are serving these two industries quite well.

Wednesday’s data seemed to be in sync with the latest Beige Book report published last week that noted employment “declined slightly.” Around half of the districts noted weaker labor demand, while New York, Dallas, and Minneapolis reported slight declines in payrolls from early October to mid-November.

Homebase similarly reported that small-business hiring declined by 1.7% in November, compared with the 1.4% year-over-year growth experienced in 2024. The data, which is drawn from 100,000 small businesses and 2 million hourly workers, shows that small businesses have been reducing worker head count and hours, even amid typical seasonal demand.

ADP reported that the pace of wage growth slowed last month compared with October. Pay was up 4.4% year over year for employees who have stayed in the same position, compared with October’s 4.5% pace. Those changing jobs saw wages increase 6.3% year over year in November, a pullback from the 6.7% growth in October.

ADP’s employment data has historically been a poor guide to nonfarm payroll estimates from the BLS. But given the lack of official government data, Brown says the weakness in November private payrolls is likely to provide some “further ammunition to the more dovish FOMC participants who still favor a final cut this year.”

Write to Megan Leonhardt at megan.leonhardt@barrons.com