ADP Employment Data Turns Negative as U.S. Labor Market Shows Signs of Weakness

Signs are mounting that the true state of the U.S. labor market may be less robust than many in the market believe. Although job growth remains solid, the pace of increase is slowing. Economists expect the U.S. Department of Labor’s non-farm payroll report, to be released tonight Beijing time, will show an increase of 110,000 new non-farm jobs in June. During the first five months of this year, the U.S. added an average of 124,000 jobs per month, down from last year’s average of 168,000. This decline reflects, to some extent, the impact of shifting tariff policies, government layoffs, and stricter immigration controls. More fundamentally, slowing population growth and an aging labor force may be limiting the ability to create jobs at the pace seen in the past.

One positive development has been the persistently low level of layoffs, with employers maintaining staff despite economic concerns and wage growth remaining strong. However, economic uncertainty has slowed hiring. While most current employees are retaining their positions, job seekers—including recent graduates, those returning to the workforce, and laid-off individuals—are finding it difficult to secure employment. This has resulted in stagnation in the labor market, where even job creation fails to drive significant change. In this environment, a small increase in hiring could restart job growth, while a modest rise in layoffs could further rigidify the labor market.

The unexpected contraction in ADP private-sector employment figures released last night further underscored the challenges in the labor market. ADP reported a decline of 33,000 jobs in June, against expectations for a 100,000 increase, a deviation of five standard deviations. This marked the first negative ADP reading in over two years, and no economist had forecast such a result. ADP’s chief economist, Nela Richardson, stated that while layoffs remain rare, employers are cautious about new hiring and reluctant to fill vacancies, contributing to the job losses reported.

Over the past three months, ADP's average monthly job growth has fallen to 18,700, the lowest since the early pandemic. Other indicators point to labor market softness: data from the Conference Board showed the proportion of consumers who viewed jobs as plentiful dropped to its lowest in over four years.

The boundary between slow job growth and zero growth may be narrower than it appears. Evidence is increasing that official non-farm employment figures released this year may have been overstated. Given the U.S. Department of Labor’s frequent downward revisions, attention is now focused not only on June’s figures but also on possible downward revisions to April and May. Cailian Press previously highlighted this issue, showing that from January to April, monthly non-farm figures were revised downward by an average of 55,000. March’s initial report of 228,000 new jobs was revised to 185,000, then to 120,000.

Pantheon Macroeconomics economist Samuel Tombs noted that early responders to labor surveys are usually large, well-capitalized firms, while delayed responses often come from smaller businesses lacking the resources to manage challenges such as high tariffs and reduced immigrant labor. As these lagged responses are incorporated, the employment picture worsens. The latest ADP report confirmed this, showing that most of the June job losses were concentrated among small businesses.

Even if job growth is lower than publicly reported, this may not necessarily indicate economic weakness. It may instead reflect a structural change: the U.S. may no longer be able to generate jobs as it once did. The growth of the native-born working-age population has nearly halted, and the flow of new immigrants into the labor force has slowed significantly. According to a report released Wednesday by Brookings Institution economists Wendy Edelberg and Tara Watson, along with Stan Veuger from the American Enterprise Institute, net immigration to the U.S. this year may fall to zero or turn negative. They estimate that by the second half of 2025, the U.S. may need to add only 10,000 to 40,000 jobs per month to maintain the current 4.2% unemployment rate.
While a smaller labor force reduces the number of new jobs needed to prevent rising unemployment, it also implies slower overall economic growth for an economy that can no longer expand employment at its previous pace.