The Drop
The U.S. labor market slowdown intensified in November as private companies cut 32,000 workers. Small businesses were hit the hardest, payrolls processing firm ADP reported Wednesday.
The decline marked a sharp step down from October's upwardly revised gain of 47,000 positions. It was well below the consensus estimate for an increase of 40,000.
The total loss was the biggest drop since March 2023.
The Small Business Problem
Larger businesses with 50 or more employees actually reported a net gain of 90,000 workers.
However, establishments with fewer than 50 workers saw a decline of 120,000. That included a drop of 74,000 among firms with 20 to 49 employees.
Economists attributed small business losses to tariffs on imports that have raised costs. Medium enterprises added 51,000 jobs while large businesses gained 39,000.
Industry Breakdown
Education and health services led gainers with 33,000 hires. Leisure and hospitality added 13,000. But a broad-based decline across industries drove the total lower.
The biggest loss came in professional and business services, which shed 26,000 jobs. Information services dropped 20,000. Manufacturing cut 18,000. Financial activities and construction both lost 9,000.
Pay Growth Slows
The rate of pay also slowed. Workers staying in their jobs saw a 4.4% year-over-year increase, down 0.1 percentage point from October.
The Economist Take
"Hiring has been choppy of late as employers weather cautious consumers and an uncertain macroeconomic environment," said ADP chief economist Nela Richardson. "And while November's slowdown was broad-based, it was led by a pullback among small businesses."
Some economists cautioned against reading too much into the decline. They noted the ADP report has diverged from the government's private payrolls count.
"It is too loosely correlated with the official data to be troubling," said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.
Fed Implications
The ADP report is the last jobs picture the Federal Reserve gets before it meets Dec. 9-10.
Futures traders are assigning a nearly 90% probability the central bank will approve another quarter percentage point cut in its key interest rate. The probability was about the same following the ADP release.
Some economists said the Fed could pay more attention to the ADP report than usual since the November BLS employment report won't be available before the meeting.
"The ADP report might be all that it needs for the more dovish-leaning governors to counter some hawkish-leaning regional presidents to push through another rate cut," said Sal Guatieri, senior economist at BMO Capital Markets.
Fed Division
Fed policymakers have expressed a divergence of opinions. One side sees cuts as necessary to head off further labor market troubles. The other worries that additional reductions could aggravate inflation, which has held considerably above the Fed's 2% target.
As many as five of the 12 voting policymakers have voiced opposition or skepticism about cutting rates further. A core of three Board of Governors members wants rates to fall.
The Delayed Data
The Bureau of Labor Statistics will release its take on the nonfarm payrolls picture on Dec. 16. That date was delayed because of the government shutdown.
The report will include nonfarm payrolls for October. The unemployment rate for October will never be known because the longest shutdown in history prevented data collection for the household survey.
The economy added 119,000 jobs in September, with the unemployment rate rising to a four-year high of 4.4%.
The Market Reaction
Stocks on Wall Street were trading higher. U.S. Treasury yields fell and the dollar slipped against a basket of currencies.
The Bottom Line
Private payrolls fell 32,000 in November with small businesses shedding 120,000 jobs due to tariff-driven cost pressures, posting the biggest decline in over two years just before the Fed's December meeting where a quarter-point rate cut remains 90% likely despite the weak data.
