In a surprising turn of events, payroll growth at private companies in October exceeded expectations, according to a report released by ADP on Wednesday. The data revealed that companies added 42,000 jobs for the month, marking a rebound following a decline of 29,000 jobs in September. This job growth not only surpassed the Dow Jones consensus estimate of a 22,000 job gain but also indicated that the labor market may not be as vulnerable as previously thought. Notably, a revision of the September figures showed 3,000 fewer jobs lost than initially reported.
A significant contributor to the overall job growth was a gain of 47,000 jobs in the trade, transportation, and utilities sector, which helped counterbalance losses in several other categories. The education and health services sector also reported a robust increase of 26,000 jobs, while financial activities added 11,000 positions. However, despite the ongoing tech boom fueled by artificial intelligence, the information services sector experienced a downturn, losing 17,000 jobs.
Other sectors that faced challenges included professional and business services (-15,000), other services (-13,000), and manufacturing, which saw a decrease of 3,000 jobs. This continued decline in manufacturing is particularly concerning, given the efforts made by former President Donald Trump to revitalize factory jobs in the U.S. The job growth noted in October was predominantly driven by larger companies, with firms employing at least 250 workers adding 76,000 jobs. Conversely, smaller businesses, which typically account for three-quarters of job creation, lost 34,000 jobs.
ADP's chief economist, Nela Richardson, highlighted the significance of the downturn in small business hiring, stating that small companies are crucial in driving job growth. "While big companies make headlines, small companies drive hiring," Richardson explained during a recent CNBC interview. She emphasized that the weakness observed at the small-business level remains a concern, contributing to the overall sluggishness of the economic recovery.
Despite the modest job growth, salary increases have continued. Year-over-year pay for employees who remained in their positions rose by 4.5%, consistent with September's figures, while those who switched jobs saw a more pronounced increase of 6.7%, a slight uptick from the previous month. While private employers added jobs in October for the first time since July, the hiring pace has been relatively modest compared to earlier in the year, according to Richardson.
Looking at the broader picture, job growth has averaged about 60,000 jobs per month in recent times, but there's been a noticeable slowdown in the second half of the year. The ADP report, typically released on the first Wednesday of each month, often plays a secondary role to the Bureau of Labor Statistics' (BLS) official nonfarm payrolls report, which was set to be released shortly after. However, due to the historic government shutdown, the BLS has suspended data collection and reporting.
Before the BLS report was postponed, Wall Street anticipated it would reflect a loss of 60,000 jobs and an increase in the unemployment rate to 4.5%. Federal Reserve officials have expressed growing concern regarding the labor market's state, indicating that it has now taken precedence over inflation rates, which remain above the 2% target. In light of these developments, the Federal Reserve recently approved a quarter percentage point reduction in its key interest rate, now set between 3.75%-4%.
As the labor market continues to evolve, officials will be monitoring various economic indicators closely, as the current landscape presents both challenges and opportunities for growth.
