ADP Reports 33K Job Loss in June, Traders Eye Fed Moves as Services Lead Cuts

Private Payrolls Contract as ADP Misses Forecast, Signaling Possible Labor Market Weakness

Private sector hiring unexpectedly contracted in June, according to ADP, adding fresh concerns over the health of the U.S. labor market as investors weigh the resilience of the broader economy. Private payrolls fell by 33,000 last month, sharply missing expectations for a 100,000 gain and marking the first decline since March 2023.

Services, Small Firms Lead Declines in ADP Report

ADP reported that service-oriented sectors drove the decline, with professional and business services shedding 56,000 jobs and health and education losing 52,000. Financial activities fell by 14,000, underscoring hesitancy among employers to replace departing workers. In contrast, goods-producing sectors such as manufacturing and mining added 32,000 positions, reflecting resilience in parts of the labor market even as broader hiring slowed.

Regional Weakness and Income Growth Slow

Regionally, the Midwest and Western U.S. posted the largest declines, down by 24,000 and 20,000, respectively, while the South added 13,000 jobs, the only region to see net gains. Small businesses were hit hardest, with firms under 20 employees losing 29,000 roles, while larger businesses with over 500 employees added 30,000 jobs. Wage growth slowed slightly, with pay gains for job stayers easing to 4.4% from 4.5%, and job changers seeing pay growth drop to 6.8% from 7%.

Traders Eye Federal Reserve Rate Path

The ADP report arrives ahead of Thursday’s official nonfarm payrolls data, where economists expect a 110,000 job gain, though ADP’s miss may prompt downward revisions. While ADP data often diverges from official figures, the report reinforces the narrative of a cooling labor market that could influence the Federal Reserve’s next steps on interest rates. Traders have increased bets on a potential rate cut, with Fed futures pricing in a roughly 23% chance of easing at the July meeting.

Stocks and Bonds Hold Steady Despite Labor Miss

Stock futures initially slipped on the ADP data, with S&P 500 futures down 0.1% and Nasdaq 100 futures lower by 0.2%, as investors weighed labor weakness against hopes of policy support. Treasury yields remain elevated, with the 10-year yield at 4.285% and the 2-year at 3.766%, reflecting cautious sentiment as traders await confirmation from Thursday’s labor report.

Market Outlook: Labor Softness May Pressure Fed

The unexpected contraction in private payrolls underscores emerging weakness in the labor market, increasing the likelihood of policy support from the Federal Reserve if confirmed by official data. Traders should prepare for near-term volatility around Thursday’s report while monitoring signs of broader economic softening.

More Information in our Economic Calendar.