Private Payrolls Miss Forecast at 146K in November, Pressuring Fed Policy Moves

Private Payrolls Slow in November: What Does It Mean for Markets?

The U.S. labor market showed signs of cooling in November, as private payrolls rose by just 146,000, according to ADP’s latest report. This figure fell short of Dow Jones’ forecast of 163,000 and marked a slowdown from October’s downwardly revised 184,000. The deceleration highlights mixed performance across industries, suggesting the labor market’s resilience is being tested.

What Sectors Led or Lagged?

Education and health services drove growth, adding 50,000 positions, followed by construction (+30,000), trade, transportation, and utilities (+28,000), and other services (+20,000). However, manufacturing stood out as a weak spot, shedding 26,000 jobs—its sharpest decline since spring. Small businesses (fewer than 50 employees) also struggled, reporting a net loss of 17,000 jobs.

Despite slower hiring, wage growth accelerated by 4.8% in November, reversing a 27-month trend of cooling increases. This uptick in wages may concern Federal Reserve policymakers as they weigh the implications of tighter labor conditions on inflation.

Implications for the Federal Reserve

The ADP data adds complexity to the Federal Reserve’s deliberations. While slowing payroll growth could support the case for maintaining current interest rate levels, the acceleration in wages signals that inflationary pressures in the labor market remain. With the Fed already cautious about declaring victory over inflation, this report likely reinforces a data-dependent stance ahead of next week’s Federal Open Market Committee (FOMC) meeting.

How Will Markets React?

• Yields: Bond yields could rise if the wage acceleration bolsters inflation concerns. However, the subdued job growth might counterbalance this, leaving yields range-bound in the near term.
• US Dollar: The dollar’s trajectory may hinge on Friday’s nonfarm payrolls report. For now, slower private payroll growth could weigh on the greenback, as it tempers expectations for further Fed tightening.
• Gold: Gold prices may gain from the dovish implications of slower job growth, particularly if dollar weakness accompanies falling Treasury yields.
• Stocks: Equity markets might react favorably to signs of labor market cooling, as investors interpret them as reducing the need for higher interest rates. However, concerns over wage-driven inflation could limit gains, especially in rate-sensitive sectors like technology.

Market Forecast

The labor market’s mixed signals suggest a cautious market outlook. Slower payroll gains indicate some cooling, supporting a dovish Fed narrative, but wage pressures complicate this scenario. Near-term, expect range-bound movements in yields and the US dollar, potential upside for gold, and selective strength in equities, particularly among defensive and interest-rate-sensitive sectors. Traders will closely monitor Friday’s BLS report for confirmation or divergence from ADP’s findings.

More Information in our Economic Calendar.