Small Businesses Slash 120,000 Jobs, Why the Weak Jobs Report Guarantees a Fed Rate Cut
- US private payrolls unexpectedly fell by 32,000 in November which was the worst decline since early 2023.
- Small businesses were hit hardest and cut 120,000 jobs while larger companies managed to increase headcount.
- The weak data reinforces expectations for a Federal Reserve rate cut next week amid delayed government statistics.
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| Photo by Rex Roberts on Unsplash |
The American job market officially stumbled in November. Companies unexpectedly shed 32,000 jobs last month according to the latest data from ADP Research. This represents the sharpest decline in private payrolls since early 2023. The numbers completely missed Wall Street estimates. Economists had predicted a modest gain of 10,000 positions. Instead the data reveals a contraction that suggests the economy is cooling much faster than policymakers anticipated.
This report arrives at a critical moment for the Federal Reserve. Central bank officials are preparing for their final policy meeting of the year next week. They are flying partially blind because a recent record-long government shutdown delayed the official jobs report from the Bureau of Labor Statistics. The lack of government data makes this ADP report the primary gauge for the health of the economy. The Fed must now decide whether to cut rates to save jobs or hold steady to fight inflation.
The pain is not being felt equally across the board. Small businesses are bearing the brunt of the slowdown. Companies with fewer than 50 employees slashed 120,000 jobs in a single month. This represents the largest drop for this sector since the height of the pandemic in May 2020. While small players are bleeding cash and cutting staff larger corporations with more than 50 employees actually added headcount. This divergence highlights a growing divide where Main Street struggles with high interest rates while Wall Street stays afloat.
Specific industries are seeing a sharp reversal in fortune. Professional and business services led the decline in payrolls. The information and manufacturing sectors also shed workers. Healthcare and education services were the only bright spots that managed to increase hiring. This shift indicates that the white-collar recession is persisting while service-oriented roles struggle to find enough bodies to fill shifts.
There is a silver lining for those worried about inflation but it comes at a cost to workers. Wage growth has cooled significantly. People who changed jobs saw a pay increase of only 6.3 percent which is the lowest rate since early 2021. Those who stayed in their current roles saw gains of just 4.4 percent. The era of massive pay bumps appears to be over as employers regain leverage in negotiations.
The narrative of a "low hiring low firing" environment is starting to crack. Major players like Apple and Verizon have recently announced workforce reductions or plans to cut staff. These moves suggest that big business is preparing for a leaner year ahead. Unemployment risks are rising as these cuts ripple through the supply chain. The days of hoarding talent are over as efficiency becomes the new mandate for corporate America.
Investors are now widely betting that the Fed will lower borrowing costs next week. However the decision inside the room will likely be contentious. Veronica Clark is an economist at Citigroup and she believes the vote will be divided. The central bank faces a delicate balancing act. A rate cut seems imminent but the guidance for 2026 will likely remain cautious. The financial markets reacted swiftly to the signs of weakness with the S&P 500 opening lower and Treasury yields falling.