ADP Employment Report: Job Growth Hits 6-Month Low

Since June, payroll processor ADP’s nonfarm, private employment data showed that job creation has decreased in every subsequent month. June saw 190,000 payroll additions, a figure that dropped to 161,000 in July, 151,000 in August, 145,000 in September, and 130,000 in October. In fact, the 130,000 job gain was the lowest number of additions recorded since April’s 124,000. Even after September’s 166,000 payroll additions were downwardly revised, this month’s job creation was shockingly low. Economists had expected ADP to report that employers added 150,000 jobs to their payrolls in October.

ADP National Employment Report

Government statistics show that private and government employers added an average of only 143,000 jobs per month from July through September, a decrease from the 182,000 jobs per month added from April through June and the 207,000 jobs in the first three months of the year.

According to Moody’s Analytics chief economist Mark Zandi, whose firm helps compile payroll processor ADP’s National Employment Report, the party responsible for the month’s lower growth is clear. “The government shutdown and debt limit brinksmanship hurt the already softening job market in October,” he said in the Wednesday report. The hurt he speaks of is more than a minor bruise. Since average monthly growth has fallen below 150,000, “any further weakening would signal rising unemployment,” Zandi added. Low job creation is an across-the-board trend. “The weaker job growth is evident across most industries and company sizes,” the economist noted.

Small business, employing between 20 and 49 workers, slowed hiring the most significantly. Those companies added an average of 30,000 positions in each of the past 12 twelve months, but they added 2,000 jobs in October. “Small business growth was down from the previous month, while payrolls among large enterprises showed an increase,” explained ADP’s President and Chief Executive Officer Carlos Rodriguez.

But the increase in employment at larger businesses was not fuel enough to boost hiring dramatically. Large businesses added 81,000 jobs, medium businesses with between 50 and 499 employees added 13,000 jobs, and small companies, employing between 1 and 49 workers, added 37,000 jobs. Likely, smaller businesses kept hiring limited because of the concerns that Washington’s political standoff over raising the debt limit would result in a default, an event that would have created deep economic problems for the United States.

In keeping with the pattern of the past several months, the majority of job gains — 107,000 to be exact — came from the service-providing sector. Comparatively, the goods-producing sector added 24,000, an increase from the 16,000 added in September. In particular, the construction industry added 14,000 jobs, down from 16,000 in the previous month.

ADP National Employment Report

It is important to remember than ADP’s report is typically seen as less accurate than the government’s official numbers, but nevertheless, the payroll processors’ October numbers do not bode well for the government’s employment situation report, which will be released next Friday.

Furthermore, as Zandi said in the ADP jobs release, the low job creation will likely prompt the Federal Reserve to maintain its current levels of stimulus. The central bank is scheduled to release a summary of the results the Fed policymakers’ two-day meeting on Wednesday. With the weakening labor market and the problem of federal spending and debt yet to be resolved, he believes the Fed’s monthly asset purchases will remain unchanged.

Zandi expected the Department of Labor’s report to show the United States economy created just 100,000 jobs in October, and the unemployment level could rise from its current 7.2 percent.

The fact that the government’s September jobs report showed the unemployment rate fell to 7.2 percent gave the labor market a very small measure of solace. Since June, the unemployment rate of 7.2 percent has fallen 0.4 percentage points as the ranks of the unemployment declined by 522,000. In general, recent drops in the headline unemployment rate have had little to do with job creation and much to do with labor force participation.

In August, the unemployment rate ticked down, largely as the result of job hunters dropping out of the workforce. The share of working-age Americans who were employed or looking for work fell to 63.2 percent last month — its lowest level since 1978, a time when fewer women were participating in the labor force.

But, unlike in previous months, September’s decrease in the headline unemployment rate was accompanied by a similar decline in a broader measure of unemployment. The U-6 unemployment rate, which includes those marginally employed and those employed part-time for economic reasons, dropped from 13.6 percent from 13.7 percent because more Americans were working that month. The number of people employed in September increased by approximately 133,000 while the number of people who said they were unemployed fell by about 61,000. But the labor market participation rate did remain flat with August’s level, which was disappointing aspect of the jobs report.

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