December Fed Rate Cut Prospects Strengthen After ADP Shows Deepening Labor Market Weakness

December Fed rate cut prospects strengthened after ADP reported a deeper than expected drop in private hiring. The shift came from the labor signal, not from a change in market pricing. Futures still indicate about an 89% chance fed rate cut.

ADP Reports Biggest Private-Payroll Drop Since March 2023

According to ADP report, private employers cut 32,000 jobs in November. That compared with a Dow Jones consensus forecast for a 40,000 increase. The decline followed an upwardly revised gain of 47,000 in October. ADP said the drop was the largest since March 2023.

Small businesses accounted for most of the weakness. Firms with fewer than 50 employees reported a net decline of 120,000 jobs. Within that group, companies with 20 to 49 workers shed 74,000. Larger businesses moved in the opposite direction. Companies with 50 or more employees reported a net gain of 90,000.

Industry data showed gains in a few areas and losses across many others. Education and health services added 33,000 jobs. Leisure and hospitality added 13,000. Professional and business services fell by 26,000. Information services declined by 20,000. Manufacturing dropped by 18,000. Financial activities and construction each posted losses of 9,000.

Wage growth slowed again in ADP’s report. Workers who stayed in their roles saw pay rise 4.4% from a year earlier. That was 0.1% lower than in October. ADP Chief Economist Nela Richardson said hiring has been uneven. She said the November slowdown was broad-based and led by small businesses.

Fed Rate Cut Outlook Firms Up

The ADP release is the last such reading before the Fed meeting. It lands as policymakers weigh competing risks. Some officials have argued that further fed rate cuts may be needed to prevent more labor-market damage. Others have warned that additional cuts could fuel inflation. Inflation has remained above the Fed’s 2% target.

The Federal Open Market Committee meets Dec. 9–10. The rate decision is scheduled for 2:00 P.M. ET on Dec. 10. Fed Chair Jerome Powell will hold a press conference at 2:30 p.m. ET.

Another key labor update is scheduled after the meeting. The Bureau of Labor Statistics will publish nonfarm payrolls data on Dec. 16. That date was delayed because of the government shutdown. The report will offer a government reading on job growth and wages.