"Small Non-Farm" Unexpectedly Cold, Rate Cut Expectations Heat Up Again! U.S. June ADP Unexpectedly Decreased by 33,000, First Negative Growth in Over Two Years

According to the Zhitong Finance APP, the number of private sector jobs in the United States saw its first decline in over two years in June, primarily due to a reduction in service sector positions. This sign may raise market concerns about a rapid slowdown in the labor market.

According to data released by the ADP Research Institute on Wednesday, the revised increase in employment for May was 29,000, while the number of private sector jobs decreased by 33,000 in June. Economists surveyed had not anticipated negative growth.

ADP Chief Economist Nela Richardson stated in a statement: "Although layoffs remain rare, employers are cautious about new hiring and are unwilling to fill vacancies left by departing employees, leading to a contraction in employment last month."

It is important to note that the ADP report's accuracy in predicting subsequent official non-farm payroll data has historically been unstable, and the market typically places more emphasis on the authoritative reports from the U.S. Department of Labor. For example, the weak ADP data in May showed a significant deviation from the official employment data released the following week. The official non-farm payroll report, set to be released on Thursday, is expected to show that the employment growth rate in June may hit a four-month low, with the unemployment rate possibly rising slightly to 4.3%.

Following the data release, U.S. Treasury yields fell, stock index futures declined, and the dollar's gains narrowed. Traders increased their bets on at least two rate cuts by the Federal Reserve before the end of 2025, with the probability of three rate cuts also significantly rising after the ADP employment data was released. Additionally, trading data from the interest rate futures market showed that traders' bets on a 25 basis point rate cut by the Federal Reserve in July rose from 20.7% to 24.3%.

Carl Weinberg, Chief Economist at High Frequency Economics, stated: "The ADP data is far below market expectations, and the sight of negative employment growth is shocking. Regardless of whether this report is accurate, traders and investors will view it as a bearish signal for today's market."

Adam Sarhan from 50 Park Investments pointed out: "This is the first disappointing contraction in the U.S. job market in recent months. Given the previous continuous decline in the unemployment rate and strong job market performance, the current situation is indeed concerning."

Weinberg also warned that companies may resort to "more aggressive layoffs" to cope with rising costs due to tariffs, stating, "This may just be the tip of the iceberg, but it could also be a false alarm."

Service Sector Hit Hardest

As the impact of the Trump administration's trade policies continues to unfold, employers are adopting more cautious hiring strategies and are doubling down on cost control. Companies are focusing on adjusting their workforce to adapt to the current slowdown in economic growth In June, the number of jobs in the service sector decreased by 66,000, mainly due to job cuts in professional and business services, healthcare, and education. However, employment in manufacturing, construction, and mining saw growth. Employment in small and medium-sized enterprises generally declined.

Regionally, the Midwest and West saw reductions of 24,000 and 20,000 jobs, respectively, while the Northeast experienced a slight decrease of 3,000, with only the South achieving a net increase of 13,000. In terms of company size, large enterprises with over 500 employees increased hiring by 30,000, while small micro-enterprises with fewer than 20 employees saw a net reduction of 29,000 jobs.

The ADP report shows that the average job growth over the three months ending in May has slowed to 18,700, the lowest level since the early days of the pandemic. Other data indicates that the reemployment cycle for the unemployed is extending, and statistics from the headhunting firm Challenger, Gray & Christmas show that the scale of corporate hiring in June was the second lowest recorded since 2004.

Data from the Conference Board indicates that the proportion of consumers who believe "job opportunities are plentiful" fell to its lowest level in over four years in June.

Despite signs of a slowdown, Federal Reserve Chairman Jerome Powell has repeatedly emphasized that the labor market remains robust. Given the need to observe the impact of tariffs on inflation, Federal Reserve officials have maintained interest rates unchanged throughout this year.

A report jointly released by ADP and the Stanford Digital Economy Lab shows that wage growth has cooled. The salary of employees who changed jobs increased by 6.8% year-on-year, while the increase for retained employees was 4.4%. The data in this report covers over 25 million private sector employees in the United States