US Labor Market Cools: ADP Reports Weak Hiring, Tech Layoffs Surge

US Labor Market Shows Signs of Cooling

The US labor market is displaying clear signs of deceleration, with recent data pointing to a slowdown in hiring and an uptick in layoffs. This shift could have significant implications for the Federal Reserve’s monetary policy decisions in the coming months.

Private Sector Hiring Slows

According to ADP, private sector payrolls grew by just 99,000 in August, marking the weakest pace of job growth since January 2021. This figure fell short of the Dow Jones consensus forecast of 140,000 and represents a significant drop from July’s downwardly revised 111,000 jobs.

The slowdown was particularly pronounced in certain sectors:

• Professional and business services declined by 16,000 jobs
• Manufacturing lost 8,000 positions
• Information services saw a decrease of 4,000 jobs

However, some sectors continued to add jobs:

• Education and health services increased by 29,000
• Construction added 27,000 positions
• Financial activities gained 18,000 jobs

Layoffs on the Rise

Compounding the hiring slowdown, layoffs have surged. According to Challenger, Gray & Christmas, August saw the highest number of job cuts for the month in 15 years. The technology sector was hit particularly hard, announcing 41,829 cuts – the most in 20 months.

Productivity and Labor Costs

In a separate report, the Bureau of Labor Statistics revealed that nonfarm business sector labor productivity increased by 2.5% in the second quarter of 2024. This was accompanied by a modest 0.4% increase in unit labor costs, reflecting a 3.0% rise in hourly compensation partially offset by productivity gains.

Initial Jobless Claims

The latest data on initial jobless claims showed a slight improvement, with 227,000 claims filed in the most recent week, lower than the estimated 230,000. However, this figure remains elevated compared to historical norms.

Market Forecast

The cooling labor market is likely to influence the Federal Reserve’s upcoming policy decisions. Markets are now pricing in at least a quarter percentage point cut at the September meeting, with expectations of a full percentage point reduction by the end of 2024.

This shift in the labor market, combined with other economic indicators, suggests a more cautious outlook for the US economy in the near term. Investors and businesses should prepare for potential volatility as the market adjusts to these changing conditions. The upcoming nonfarm payrolls report will be crucial in confirming or challenging this trend, potentially setting the stage for significant market movements in the coming weeks.