U.S. private employment sharply declines… signal of accelerated Fed rate cuts

Korea Economic Daily

Summary

Automatic Data Processing (ADP) reported that recent U.S. private employment has significantly deteriorated.
Due to worsening employment indicators, views have emerged that the Fed's rate cut next month could come at an accelerated pace.
The Chicago Mercantile Exchange (CME) FedWatch reported that the probability of a rate cut next month rose to 69.4%.

Recent U.S. nonfarm employment conditions have significantly deteriorated. With the U.S. central bank (Fed) taking a cautious stance on a rate cut next month, the worsening employment indicators have led to views that the pace of future rate cuts could accelerate.

Automatic Data Processing (ADP) said on the 11th that over the four weeks from September 28 to October 25, U.S. private-sector employment decreased by a weekly average of 11,250 jobs. The ADP data drew attention because it was released while the U.S. federal government had gone into a shutdown starting on the 1st of last month. The shutdown delayed releases such as the U.S. Bureau of Labor Statistics (BLS)'s Job Openings and Labor Turnover Survey (JOLTS).

ADP originally published the statistics on a monthly basis on the first Wednesday of each month. But due to the prolonged U.S. federal government shutdown, it expanded to weekly employment releases starting on the 28th of last month. The U.S. central bank (Fed), for which employment statistics are important, also uses ADP figures as a supplementary indicator.

Earlier, ADP's October monthly figure released last week showed an increase of 42,000 from the previous month, exceeding the market forecast (32,000). Simple calculation would put the weekly average at an increase of about 10,000. However, the figure for the day showed a decrease of 11,250. This means employment conditions have deteriorated significantly compared to before.

The Fed is also concerned about cooling in the labor market. At last month's Federal Open Market Committee (FOMC) meeting, it said "the labor market is clearly cooling" and cut rates by 0.25% point following September. Fed Chair Jerome Powell said "job growth has slowed since early this year." However, he drew a line on a December rate cut. He emphasized, "A December rate cut is not a foregone conclusion," and "I have not made a decision yet."

With the employment market shown to have slowed that day, the Chicago Mercantile Exchange (CME) FedWatch reflected a 69.4% probability of a 0.25% point rate cut next month. That rose from 63.6% before the release. The probability of holding rates steady was seen as 30.6%.

Reporter Kim Joo-wan kjwan@hankyung.com