U.S. September employment data worsens again...Will expectations for an October rate cut grow?

ADP announces private employment down 32,000

Big divergence from market expectation of a 45,000 increase

Government reports delayed due to federal government shutdown

Increased likelihood of a rate cut in October

A private-sector survey showed that U.S. private employment in September decreased more than expected. With employment indicators worsening for three consecutive months since July, the likelihood of an additional rate cut by the U.S. Federal Reserve (Fed) is expected to rise.

U.S. employment data firm Automatic Data Processing (ADP) said on the 1st (local time) that U.S. private-sector employment in September fell by 32,000 from the previous month. The decline is the largest since March 2023 (a decrease of 53,000), a span of two years and three months.

Market experts had expected private employment to rise by 45,000 in September, but the data missed that by a wide margin. Nela Richardson, ADP's chief economist, said, "Despite the strong growth in the U.S. economy in the second quarter, this month's data clearly confirms that employers are being cautious about hiring."

However, it should be noted that the ADP private employment decline released that day reflected revised employment statistics from the U.S. Bureau of Labor Statistics. The U.S. government's revised employment releases are conducted regularly each year and incorporate extensive quarterly state government tax data added after the original statistics were published.

ADP explained that after reflecting the BLS's revised employment figures, its own private-employment estimate for September was revised down by 43,000. August private employment was also sharply revised down from a 54,000 increase to a 3,000 decrease.

The ADP private employment figures were released as the U.S. federal government entered a shutdown (temporary suspension of operations) starting on the 1st. According to the U.S. Department of Labor's contingency plan for a federal government shutdown, the publication of all economic reports is suspended during a shutdown.

If the shutdown continues, the Bureau of Labor Statistics' September nonfarm payrolls report, scheduled for release on the 3rd, is also expected not to be published. Following surprising deterioration in U.S. employment conditions in both July and August, Wall Street has been closely watching labor market trends.

Weak employment data can increase expectations for a U.S. central bank interest-rate cut, which can in turn boost the stock market. But if the deterioration is too severe, it could trigger concerns about a recession.

The U.S. central bank is due to hold its monetary policy decision meeting (FOMC) on the 28th–29th. The Fed implemented this year's first rate cut in September citing a cooling labor market and has indicated the possibility of an additional cut in October.

Amid expectations of rate cuts, the U.S. 10-year Treasury yield fell by about 1~1.2% that day.

Mansu Choi reporter bebop@hankyung.com