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Private payrolls increased by 135,000 jobs vs. 157,000 in August and 125,000 expected in September according to a report released by ADP and Moody Analytics on Wednesday. The monthly average for 2019 so far is 145,000, down from 214,000 in 2018, indicating a significant hiring slowdown.

Key Takeaways

• 135,000 jobs were added to the private sector compared to 125,000 expected in September.
• Although above expectations for the month, the monthly average for 2019 so far is well below that of 2018, indicating a slowdown in hiring.
• While the labor market is tightening, it’s possible that reduced demand for employment is also behind the slowdown, with recessionary pressures mounting in the US economy.

September’s gain was the slowest growth since June, and the sharp drop from August brought the monthly average for 2019 down to 145,000 compared to 214,000 in 2018. August’s figures were revised downward from 195,000 to 157,000, with all signs pointing to a major slowdown in hiring. However, the monthly average is still above the 100,000 needed to keep pace with growth in the labor market.

Small companies with fewer than 50 employees saw the slowest pace of growth in hiring with just 30,000 jobs added. Medium companies added 39,000 jobs, and large companies with over 500 workers added 39,000. Education and health services led the growth with 42,000 jobs, followed by 28,000 jobs in trade, transportation and utilities. The professional and business services sector grew by 20,000, and leisure and hospitality added 18,000. Services, as a whole, rose by 127,000, with only 8,000 jobs created in production sectors. Of those, construction added 9,000 jobs, manufacturing grew by 2,000, and natural resources and mining lost 3,000 jobs.

The ADP employment report saw job growth of 135,000 in September driven by 127,000 jobs added in the service sector (only 8,000 added in goods sector). Large businesses accounted for more than half of that job growth. https://t.co/NToV1A54PO pic.twitter.com/HO3crIZX1i

— MTS Insights (@MTSInsights) October 2, 2019

The lack of hiring in production sectors reflects recent findings from the Institute for Supply Manufacturing which shows that the sector is undergoing consistent contraction with the ISM manufacturing index hitting a ten-year low at 47.8. Any reading below 50 indicates contraction, making last month the second month of contraction in a row as exports sink due to escalating tariffs from the US/China trade war. The trade war, which has raged for well over a year, is expected to drag on Q3 GDP which is pegged at 1.8% growth.

Expert Outlook

“We are in a very critical place, kind of a fragile juncture in the economy,” Mark Zandi, chief economist at Moody’s, said during a media conference call. “What happens over the next few weeks, next few months, will determine whether there’s an economic downturn in 2020.”

Zandi also stated in a separate interview with CNBC that hiring toward the end of September was “meaningfully weaker” than at the beginning of the month.

“Demand for labor is beginning to weaken. Hiring is weakening across the board. We are seeing more weakness in manufacturing. I do think in the coming months we will see manufacturing turn negative. Even more importantly, demand is slowing in many sectors, and I don’t see any stabilization in that and that’s going to continue.”

Market Reaction

Gold prices rose to daily highs following the news. Spot gold last traded at $1,497.05/oz, up 1.02% with a high of $1,497.32/oz and a low of $1,474.83/oz. FXTM senior research analyst Lukman Otunga pointed to a variety of factors which have converged to create favorable conditions for gold this week.

“Gold bulls have been thrown multiple lifelines in the form of Dollar weakness, disappointing US economic data and renewed fears over slowing global growth,” Otunuga said. “The precious metal is positioned to push higher this week if risk aversion remains a dominant market theme. Looking at the technical picture, an intraday breakout above $1485 should inspire an incline towards the psychological $1500 level.”