Private Labor Reports

With the federal government having been shut down for 43 days, almost all government economic data was not being collected or published.  Fortunately, there is data from private entities that was available to help guide the financial markets.  Although this data has been available for years, the financial markets and clients paid scant attention to it, instead focusing on government-issued data. But now, with private data the only thing the markets can use as a guidepost, clients have been asking questions about it. So, although government data will begin to be released soon, we thought it would be a good idea to review a few of the private labor reports. Let’s take a look at some charts.

Chart 1, 0:44– As a reminder of where the labor market stands, I will start with the government data issued in September, before the October 1 government shutdown.  The August data show a strong labor market.  We will start with the unemployment rate is just 4.3%., indicating a robust labor market. It is in the range of 4.0% to 4.5%, a level that economists consider to represent full employment.

Chart 2, 1:46– This chart is not as exciting.  The columns show the monthly change in non-farm payrolls.  Due to the volatility of the monthly data, the dark blue line is the average of the past six months, which smooths the data and makes trends easier to notice.  In 2023 and 2024, the economy averaged monthly growth above the approximately 150,000 new hires it recorded in the year before the pandemic.

This year, hiring has slowed markedly. As of August, the trend had moved down to less than half that level, to just 64,000 per month average.

The tepid labor demand is attributed to high levels of economic uncertainty stemming from the trade war, layoffs of federal workers, a shortage of available workers in certain professions, such as construction, agriculture, and healthcare (often involving undocumented workers), and uncertainty surrounding artificial intelligence.

Chart 3, 1:58– Now, we will look at how this data compares with private-sector views. The dark blue columns represent the monthly change in nonfarm payrolls, as on the previous chart.

The bright-blue columns are the data from ADP. The results can vary from month to month due to differences in the underlying data and methodologies. Although the monthly data from the BLS and ADP may differ from one month to another, the trends are very close and indicate continued cooling in labor demand. So, what is ADP? It stands for Automatic Data Processing. It is the largest payroll provider in the United States. The report is based on payroll transaction data for more than 25 million workers across more than 500,000 employers. It represents about 1 in 5 private-sector workers. The report was launched in 2006 with great fanfare as an early indicator for the BLS monthly labor report. But the report didn't correlate well with the BLS report, so the market didn't pay much attention to it. In 2022, ADP announced that it had retooled the report in partnership with the Stanford Digital Economy Lab. The revamped report generally aligns with the BLS report. The results can vary from month to month due to differences in the underlying data and methodologies. The data is published a few days before the BLS’s labor report.

With the absence of government data, for economists, the critical issue is the trend.

And the trend has been showing continued cooling of labor demand.

 

Chart 4, 1:46– Another source of labor demand comes from small businesses. In this case, the National Federation of Independent Business has a lot of great information. Regarding labor demand, you can see from this chart that the outlook hasn’t changed much over the past few years. It is just a very gradual slowing, which is natural as the economy matures. This is true for finding qualified applicants for job openings (in the dark blue), the number of job openings (in the bright blue), and hiring plans (in the dark gray). All of this shows stability in labor demand.

 

Chart 5, 1:46– This is essential data because small businesses do most of the hiring. Yes, large corporations make the news with layoffs, but most hiring is happening in smaller companies.

We define small businesses as those with fewer than 250 workers. That accounts for 87% of all the job openings.

 

Chart 6, 1:46– There are other reports released that tend to make headlines, but they are not as precise, like the ADP report. One is the Challenger job-cut monthly report, which comes from the executive outplacement firm Challenger, Gray & Christmas, one of the oldest and largest outplacement firms in the country. They publish a report that includes the number of job cuts announced by companies each month. Here, you can see a gentle pickup in the number of layoffs.

 

Chart 7, 1:46– Another is the WARN report, which is an acronym for Worker Adjustment and Retraining Notification. Since 1988, the WARN Act has required most employers with 100 or more employees to provide 60 days' notice of planned closings and mass layoffs. This is intended to help protect employees, their families, and the communities they serve by giving them some advanced warning of employment changes. In the past few weeks, large companies (Amazon, Starbucks, Target, etc.) have announced high-profile layoffs. Some of that may be showing up in the October data.

 

This video focused on private-sector data on the labor market. It has been shown that demand for labor continued to grind to a halt as employers remain concerned about what the future may look like. But the general theme is that there has been very little laying off of the roughly 160 million workers in the country. With the regular release of economic data in the coming weeks, the Fed will have the information it needs to conduct monetary policy. That should help lower some of the anxiety that many firms have regarding future hiring.