Job Creation Numbers Beat Forecasts, Fresh Sign of Tight Labor Market

A pedestrian walks by a 'Now Hiring' sign outside of a Lamps Plus store in San Francisco, Calif., on June 3, 2021. Justin Sullivan/Getty Images

Job creation numbers slightly beat forecasts in September, but the U.S. labor market showed signs of tightening.

Demand for workers remains strong, despite another increase in interest rates and weakening financial conditions, according to  ADP’s National Employment report for September, released on Oct. 5.

One bright spot was that private employers added 208,000 jobs last month, more than expected, according to the ADP report. The news service Dow Jones estimated 200,000 new jobs last month, which was ahead of the revised figure of 185,000 positions in August.

ADP, the payroll services firm, jointly compiles the jobs report with the Stanford Digital Economy Lab.

Publication of the report was in September, using August data, after a two-month hiatus.

ADP revised its methodology over the summer after a poor record predicting the private payrolls count for the Bureau of Labor Statistics’s (BLS) closely watched employment report.

The ADP report came a day after the latest Job Openings and Labor Turnover Survey by the BLS, which showed openings in August seeing their largest drop since the pandemic.

Job openings fell by more than a million, but ahead of forecasts, t0 10.1 million, according to the government agency.

“We are continuing to see steady job gains,” said Nela Richardson, ADP’s chief economist. “While job stayers saw a pay increase, annual pay growth for job changers in September is down from August.”

However, goods-producing industries witnessed a loss of 29,000 positions, as the manufacturing sector experienced 13,000 losses, while natural resources and mining lost 16,000 jobs.

The information sector shed 19,000 jobs, while financial activities lost 16,000 positions.

A jump in the trade, transportation, and utilities sectors offset those losses with a gain of 147,000.

Employment in the professional and business services sector rose by 57,000, while education and health services posted a 38,000 increase.

The hospitality sector grew by 31,000 positions, but construction added no jobs.

Regarding size, small employers with 50–499 workers saw a gain of 90,000, while larger firms added 60,000 and small businesses took in 58,000 new hires.

Positive Jobs Numbers and Fed Rate Policy

Positive jobs numbers are seen as a negative by the Federal Reserve, which is trying to slow down the economy in order to lower inflation.

“Labor market remains too tight, according to the ADP report. We added 208k jobs in Sept., which is a very healthy number in normal times, not the deceleration the Fed wants to see today. Good news is bad news for the stock market,” noted Andrew Davis, head of macroeconomic research at Michigan State University, in a statement on Twitter.

ADP reported another month of pay hikes, with annual pay up 7.8 percent from a year ago.

Workers who changed jobs saw an average increase in annual pay of 15.7 percent, which is down from 16.2 percent in August. This is the largest monthly drop recorded by the payroll firm in three years.

The closely watched non-farm payrolls report by the Bureau of Labor Statistics is expected to be released on Oct. 7.

The estimate for the Friday report is for an increase of 275,000 jobs, economists told CNBC.

The job market is tightening, as employers adjust to a slowdown in demand caused by the aggressive interest -ate policy by the Federal Reserve, which is combating high inflation.

Since March, the central bank hiked its policy rate from near zero to a range of 3.00–3.25 percent after its latest hike, and after the Federal Open Market Committee’s last meeting, the policy-making arm of the Fed signaled more percentage increases this year.

Fed officials said that they are watching the jobs numbers closely.

Though ADP revised its methodology over the summer, the August total, which was revised up sharply from the originally reported 132,000, was still well shy of the BLS count of 315,000 added jobs.

The U.S. trade deficit fell again on Oct. 5, declining to $67.4 billion in August, its lowest level since May 2021, as a slowdown in demand due to higher borrowing costs has weighed on imports, leading the trade deficit to shrink.

Tighter U.S. monetary policy has raised the value of the dollar over other currencies, which has made American exports less competitive.