Private employers added just 38,000 jobs in August, according to data released Wednesday by payroll processor ADP, falling well short of economist forecasts of 48,000 and marking the weakest month of hiring since January — the latest sign that the labor market’s slowdown from earlier this summer has not meaningfully reversed.
The August figure also represents a step down from July’s revised gain of 46,000 jobs, suggesting the deceleration in hiring has continued rather than stabilized. The report lands two days before the Labor Department releases its own more comprehensive nonfarm payrolls report Friday, which economists expect to show a considerably stronger 56,000 new positions — a notable divergence between the two measures that, if it holds, would still represent a substantial rebound from July’s shocking loss of 23,000 jobs on the government’s official count. The unemployment rate is projected to hold steady at 4.1% in Friday’s report.
The sector-by-sector breakdown in ADP’s data paints a mixed picture of an economy adding jobs unevenly rather than uniformly slowing across the board. Education and health services led all sectors by a wide margin, adding 45,000 positions on their own — meaning that without healthcare and education hiring, the broader private sector would have posted a net job loss for the month. Leisure and hospitality added a further 16,000 positions, while financial activities and the catch-all “other services” category each contributed 6,000 jobs.
The weakness was concentrated in goods-producing and traditionally cyclical sectors. Manufacturing shed 17,000 jobs, continuing a rough stretch for American factories that have faced elevated input costs tied to this year’s tariff increases alongside softer demand in key export markets. Professional and business services, a category economists watch closely as a leading indicator for the broader labor market, lost 16,000 positions. Natural resources and mining, along with trade, transportation and utilities, each shed 5,000 jobs. The combination suggests employers in more economically sensitive industries have grown more cautious about adding headcount even as service-sector hiring in areas like healthcare continues largely unabated, insulated by demographic demand that doesn’t ebb and flow with the broader business cycle the way manufacturing and corporate services do.
Wage data in the report told a more complicated story about the state of the labor market than the headline job-count numbers alone. Workers who stayed in their current jobs saw annual pay gains of 4.4%, a solid if unspectacular figure by recent historical standards. But workers who switched employers saw considerably faster wage growth of 7.3%, a gap ADP’s chief economist attributed to shifting compensation patterns driven partly by demographic turnover in the workforce and partly by the early effects of AI-related disruption reshaping which skills and roles command a premium in today’s job market. That widening gap between “stayer” and “switcher” wage growth has historically been read as a signal of at least some underlying tightness in specific pockets of the labor market, even as the top-line hiring numbers soften.
The report adds a fresh data point to an increasingly consequential debate inside the Federal Reserve, which meets September 15-16 to decide on interest rates under new Chair Kevin Warsh. Warsh has been vocal about prioritizing the fight against inflation, which has remained elevated relative to the Fed’s 2% target for much of the year, even as the labor market has shown clear signs of cooling since the July jobs report first rattled markets with its unexpected contraction. Wednesday’s ADP numbers, while not as dire as July’s shock, do little to resolve the tension the Fed faces heading into its meeting: whether to hold rates steady to keep fighting inflation, or begin cutting to support a labor market that has now posted two straight months of underwhelming hiring data by two different measures.
Markets have shown some sensitivity to the report, with traders adjusting rate-cut probabilities modestly following the release, though the more consequential data point for the Fed’s actual decision will likely be Friday’s official government jobs report and the following week’s Consumer Price Index reading, both of which will land in the two weeks before the September FOMC meeting. Economists caution against reading too much into any single month’s data given how volatile job-growth figures have been over the past year, but note that a second consecutive month of ADP data undershooting expectations, even a much less dramatic shortfall than July’s, reinforces a broader narrative of labor-market softening that has now persisted long enough to be difficult to dismiss as simple noise.
For workers and job seekers, the practical effect of the slowdown has been a labor market that increasingly rewards those willing to change jobs over those who stay put — a dynamic reflected clearly in this month’s wage data — even as overall hiring across large swaths of the economy, particularly in manufacturing and professional services, remains notably subdued compared with the pace seen through most of the past several years.
The divergence between ADP’s private-sector count and the government’s broader payrolls survey has itself become a recurring point of discussion among economists this year, since the two reports have told noticeably different stories in back-to-back months. ADP’s methodology draws on actual payroll processing data from the millions of businesses that use its payroll services, giving it a real-time window into private hiring, but it excludes government employment entirely and can diverge from the Labor Department’s survey-based approach in any given month due to differences in sampling, seasonal adjustment, and which businesses happen to be included. Economists generally caution against treating either report in isolation as the definitive read on the labor market, preferring instead to look at the trend across several months of both series together — a trend that, over the summer, has consistently pointed toward softening even as the exact monthly figures have bounced around.
Retailers and small businesses in sectors like hospitality, which continued adding jobs even as manufacturing and professional services contracted, say they are still seeing steady consumer demand heading into the fall, a note of relative optimism that stands in some tension with the more cautious hiring signals coming out of goods-producing industries more exposed to tariff costs and global demand softness. That divide between consumer-facing services and more cyclically sensitive sectors is likely to remain one of the more closely watched fault lines in the data as the Fed weighs its next move, since a labor market that is cooling unevenly presents a considerably more complicated picture for policymakers than one cooling uniformly across every industry at once.
