A weak August ADP jobs report gave U.S. stocks a little breathing room after the recent selling. But traders are still waiting for Friday’s official nonfarm payrolls report for a cleaner read on what the Federal Reserve may do next.
Data out before the open showed U.S. ADP payrolls rose by 38,000 in August. That was below the 48,000 expected and marked the weakest reading since January this year. Markets reacted fast. Treasury yields dropped, U.S. stocks turned up, and gold climbed.
By the closing bell, the Dow Jones Industrial Average had gained 0.56%. The S&P 500 and Nasdaq each added 0.46%, snapping a three-session losing streak.
Soft ADP data offered relief to risk assets
The ADP report — usually treated as the private-sector payrolls read ahead of nonfarm payrolls — was the day’s main driver. Same old story. Along with inflation, labor-market numbers are still one of the Fed’s main inputs when it sets policy. Strong hiring can suggest the economy is still running too hot and may need tighter policy. Weak hiring can give the Fed more room to ease.
So a disappointing ADP number landed as good news for risk assets. In this case, softer jobs data strengthened the view that pressure for more tightening could ease, at least for now.
Friday’s nonfarm payrolls report remains the bigger event
The article warns against making too much of a single ADP release. Friday’s official nonfarm payrolls report is still this week’s main event for markets.
ADP has been used for years as a reference point for nonfarm payrolls, but the two do not move in any stable linear way. A downside miss in ADP does not automatically mean the headline payrolls number will be weak too. Right now, the market expects roughly 55,000 jobs added in August, clearly above July’s -23,000.
According to CME FedWatch, the odds of a September Fed rate hike only fell to 62.3% after the ADP report came out. So no, the market has not ruled out another hike.
Warsh comments point to a still-balanced view of labor conditions
Even with a soft monthly ADP reading, the article says Fed officials still lean toward a fairly constructive view of the labor market overall. It points to comments from Warsh at last week’s Jackson Hole gathering as one example.
Warsh said, “When labor-supply growth is close to stalling, monthly job gains will naturally stay low. But on the whole, most people who want to work are still able to keep or find jobs.” The article’s translation of that message is that when labor-supply growth is nearly stalled, monthly employment gains will naturally remain low, but most people who want to work can still keep or get jobs.
The article ties that view to longer-run structural pressure on labor supply, including tighter immigration policy, lower birth rates, and an aging population. Under that framework, slower job growth does not necessarily mean labor demand has fallen apart. It may also reflect a lack of available workers.
It also says government data shows the unemployment rate is still near historical lows. That backs the view among Fed officials that the labor market remains broadly balanced and that policy can stay centered on inflation. One weak ADP print, from that perspective, is not enough to force a shift in tone.
Relief rally, but not a clean all-clear
The article boils the setup down pretty simply: the rebound is real, and the risk is real too. The ADP miss pushed September hike odds lower from elevated levels, but a 62.3% probability still means markets are pricing in better-than-even odds of another increase.
If Friday’s nonfarm payrolls figure comes in well above the 55,000 expected, the sentiment bounce that followed the ADP release could flip back the other way. The article also says options may matter more in a window shaped by both a rebound and a near-term data test. But it adds that the piece was written by an external author and does not represent BIT’s position, nor does it amount to investment, trading, legal, or financial advice. The disclaimer also says options and other derivatives carry high risk, including the possibility of losing all invested capital and even suffering additional losses.