Soft ADP Jobs Report Supports Fed Rate-Cut Hopes

The U.S. economy added a softer-than-expected 152,000 private-sector jobs in May, payroll processor ADP estimated in a pseudo preview of official jobs data on Friday. S&P 500 futures remained higher after the report as investors weigh the implications for the Federal Reserve rate-cut outlook.

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Wall Street’s attention will next turn to the Institute for Supply Management service-sector index out at 10 a.m. ET, and the S&P Global services purchasing manager index out at 9:45 a.m.

ADP Jobs Report

ADP estimated that private employers added 152,000 jobs in May, below estimates of 173,000, according to Econoday. April’s gain was revised down to 188,000 from the initially reported 192,000.

Firms with fewer than 50 employees cut 10,000 jobs. Large firms added 98,000 jobs, while mid-sized firms with fewer than 500 workers added 79,000.

ADP showed that the goods sector saw a net gain of just 3,000 jobs. That came as manufacturing shed 20,000 jobs and the mining sector pared 9,000, while the economy gained 32,000 construction jobs.

Service-sector employers added 149,000 jobs. The bulk of job growth came from trade, transportation and utilities (55,000), health services and education (46,000) and financial activities (28,000).

On Friday, Wall Street expects the Labor Department to report a 170,000 rise in private payrolls and an overall gain of 195,000 jobs. The jobless rate and average hourly wage growth are seen holding at 3.9%.

ADP data isn’t seen as a reliable predictor of what the monthly employment report will show two days later. The two reports can vary widely on any given month but tend to match up over a longer period. Still, it’s not unusual for the S&P 500 to react to ADP data surprises.

Fed Rate-Cut Odds

After the ADP jobs data, odds of a Fed rate cut by Sept. 18 rose to 67% from 65%, according to CME Group’s FedWatch tool. Markets see 61% odds of at least two quarter-point rate cuts in 2024.

Rate-cut prospects have improved after a run of soft data, but it may take a cooler job market to give the Fed confidence that inflation won’t turn higher again.

S&P 500

S&P 500 futures rose 0.35% after the ADP data. The S&P 500 is aiming for a four-session win streak. On Tuesday, the S&P 500 scratched out a 0.15% gain to finish within 0.5% of its all-time closing high on May 21.

The 10-year Treasury yield, which had pulled back 28 basis points over the prior four sessions, edged down two basis points to 4.31% after the ADP jobs data.

Investors would welcome lower inflation and Fed rate cuts, but concerns are mounting that economic growth is slowing too much.

On Monday, the ISM manufacturing index unexpectedly edged lower, signaling a slightly deeper factory contraction. Last Friday, the Commerce Department reported a dip in real consumer spending.

Be sure to read IBD’s The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.

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