"Small non-agricultural" major upset, interest rate cut expectations rising again! Unexpected decrease of 33,000 in ADP in June in the United States, the first negative growth in over two years.

In June, private sector employment in the United States experienced its first decline in over two years, primarily driven by a reduction in service industry positions. This sign may trigger concerns in the market about a faster slowdown in the labor market. According to data released by the ADP Research Institute on Wednesday, the revised employment figure for May showed an increase of 29,000 jobs, while private sector employment in June decreased by 33,000 jobs. Economists surveyed prior to this did not predict negative growth. Nela Richardson, Chief Economist at ADP, stated in a release, "While layoffs remain rare, employers are cautious about new hires and are reluctant to fill vacancies left by departing employees, resulting in a decline in employment last month." It should be noted that the accuracy of ADP reports in predicting official non-farm employment data has always been unstable, and the market usually pays more attention to the authoritative reports from the US Department of Labor. For example, the soft ADP data in May significantly deviated from the official employment data released later that week. The official non-farm employment report, set to be released on Thursday, is expected to show that the pace of job growth in June may hit a four-month low, and the unemployment rate may slightly increase to 4.3%. Following the data release, US Treasury bond yields fell, stock index futures declined, and the US dollar's gains narrowed. Traders increased their bets on the Federal Reserve cutting interest rates at least twice by the end of 2025, with the probability of three rate cuts increasing significantly after the release of the ADP employment data. Additionally, trading data in the interest rate futures market showed that the probability of a 25 basis point rate cut by the Federal Reserve in July increased from 20.7% to 24.3% after the release of the ADP employment data. Carl Weinberg, Chief Economist at High Frequency Economics, said, "The ADP data is far below market expectations, and the sight of negative employment growth is shocking. Whether this report is accurate or not, traders and investors will see this as a bearish signal for today's market." Adam Sarhan of 50 Park Investments pointed out, "This is the first disappointing contraction in the US job market in recent months, considering the ongoing decline in unemployment rates and the strong performance of the job market, the current situation is indeed worrisome." Weinberg also warned that businesses may respond to rising costs due to tariffs by implementing "more aggressive layoffs," stating, "This may be just the tip of the iceberg, but it could also be a false alarm." Service industry hit hard by employment shortfall As the impact of the Trump administration's trade policies continues to ferment, employers are adopting more cautious hiring strategies and doubling down on cost control efforts. Companies are actively adjusting their workforce sizes to adapt to the current economic slowdown. In June, employment in the service industry decreased by 66,000, primarily due to job cuts in professional and business services, healthcare, and education sectors. However, employment in the manufacturing, construction, and mining industries saw some growth. Employment in small and medium-sized enterprises generally declined. Regionally, the Midwest and West each saw a reduction of 24,000 and 20,000 positions, while the Northeast saw a slight decrease of 3,000, and only the South saw a net increase of 13,000 jobs. In terms of business size, large enterprises with over 500 employees increased hiring by 30,000 jobs against the trend, while small businesses with fewer than 20 employees had a net decrease of 29,000 positions. The ADP report shows that the three-month average employment growth rate as of May has slowed to 18,700 jobs, hitting a new low since the early stages of the pandemic. Other data indicates that the period of reemployment for the unemployed is lengthening, and stats from Challenger, Gray & Christmas show that business hiring in June hit the second lowest level on record since 2004. Data from the Conference Board shows that the percentage of consumers who believe "jobs are plentiful" hit its lowest point in over four years in June. Despite signs of a slowdown, Federal Reserve Chairman Jerome Powell has emphasized multiple times 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 the year. A report jointly released by ADP and the Stanford Digital Economy Lab shows that wage growth has slowed. The report covers over 25 million employees in the US private sector, showing that the wage increase for job-switching employees is 6.8% year-over-year, while for employees staying in the same job, the increase is 4.4%.