US Private Sector Job Growth: Analyzing October's ADP Data Amidst Government Uncertainty

US Private Sector Job Growth: Analyzing October's ADP Data

Investors are bracing for the release of the latest ADP data on US private sector job growth, scheduled for Wednesday at 21:15 Beijing time. For the second consecutive month, investors will be without access to the official non-farm payroll data due to the ongoing government shutdown. However, scattered indications suggest the economy is still maintaining growth, with hopes for improved employment.

Key Takeaways:

• Expected increase of 28,000 jobs in the private sector.
• ADP data gaining significance in the absence of official government data.
• Other indicators point to a stable labor market despite some pressures.

ADP Expectations and Previous Data

The market anticipates that the ADP report, often referred to as the "mini-nonfarm," will show an addition of 28,000 new jobs in the US private sector during October. This would represent a notable reversal from the previous month, when the ADP report indicated a decrease of 32,000 jobs, primarily driven by a significant drop in the service sector.

Last month's actual data fell far short of economists' initial expectations of 50,000 new jobs. This discrepancy was likely due to ADP's annual preliminary benchmark adjustment to its wage data. The benchmarking process can cause substantial volatility in the monthly data, disrupting market expectations.

Looking at Weekly Data

The optimistic October forecast aligns with the weekly ADP data first released on October 28, which showed that the private sector averaged 14,250 new jobs per week in the four weeks ending October 11, compared with 10,750 jobs in the four weeks ending October 4.

At the time, ADP Chief Economist Nela Richardson stated that this rebound suggested that the large-scale hiring freeze that has plagued the labor market in recent months may be easing, although the recovery remains "modest." She also cautioned that the weekly data is just an estimate and that recent hiring has been highly volatile week to week.

Significance of ADP Data Amidst Government Shutdown

As a private sector payroll processing institution, ADP data has garnered increased attention in recent months as most federal economic data has been unavailable. Since the government shutdown began on October 1, the US Bureau of Labor Statistics (BLS) has not collected, processed, or published any official employment data, including the key monthly non-farm payroll report providing employment trends, unemployment rates, average wage growth, and working hours.

The ADP report is based on anonymous, aggregated payroll data from over 26 million US private sector employees. Although referred to as the "mini-nonfarm," it is typically not a reliable indicator of BLS data. BLS data covers both the public and private sectors, covering approximately 121,000 businesses and government agencies and approximately 631,000 workplaces, making it more representative.

Other Indicators Revealing Labor Market Status

Other indicators also suggest that the US labor market did not weaken significantly again last month.

Economists at Morgan Stanley noted in their latest report that "unemployment insurance claims, ADP job growth estimates, and household assessments of labor market conditions have generally improved in October. (When the data is eventually published, it will show) that federal sector layoffs will significantly reduce the number of jobs, but private sector employment is unlikely to be weaker than in recent months."

Unemployment insurance claims remain relatively low. Based on state data, Citigroup economists predict that initial unemployment insurance claims for the week ending October 25 will be 220,000, down from 232,000 the previous week. The Chicago Fed Labor Market Indicator shows that layoffs and other separation rates rose only slightly to 2.09% in October, compared with 2.08% last month.

According to the latest Paychex Small Business Employment Watch report, US small business employment remained relatively stable in October. This report is based on payroll data from companies with fewer than 50 employees from Paychex clients.

The employment index in the Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index also rose slightly in October, coming in at 46 compared with 45.3 in September, an increase of 0.7 percentage points.

Warning Signs

However, it is worth noting that some indicators show increasing pressure on the US labor market. For example, MacroEdge layoff tracking shows that public sector layoffs and job cut announcements totaled 154,600 last month, the highest monthly level since 2025. In addition, the number of daily new jobs on Indeed has been steadily declining.

Several large companies have recently announced significant layoff plans. Amazon said it would eliminate approximately 14,000 corporate jobs, and Reuters reported that the number could double in the future due to AI tools replacing white-collar jobs. Target plans to cut 1,800 corporate jobs, General Motors will eliminate more than 3,300 electric vehicle-related jobs, and Paramount has also begun laying off 2,000 people after merging with Skydance. Meanwhile, shipping giant UPS has cut approximately 48,000 jobs this year.

Is Over-Reliance on ADP Data a Good Thing?

Caution should be exercised as economists warn that, in the absence of official data, private survey data may be overvalued, potentially triggering abnormal volatility.

UBS Chief Economist Paul Donovan noted that private survey data is somewhat helpful in an information vacuum, but should not be given excessive weight. Due to the lack of official economic data, the credibility of such data is overvalued, and declining survey response rates and political polarization reduce the reliability of survey-based evidence.

Deutsche Bank's Jim Reid also believes that Wednesday's ADP private employment report may receive unusually high attention, especially after Federal Reserve Chairman Powell's hawkish statement last week. In the absence of data, Powell said at his press conference last week that a December rate cut is not a foregone conclusion, and the "fog" requires proceeding with caution.

It will be a while before the above signals in the labor market can be verified or refuted before the BLS publishes official data. The October non-farm payroll report was originally scheduled for release on Friday, but as the federal government is experiencing a record-long shutdown, it is unclear when the data will be published.

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