ADP reported 156,000 new private sector jobs in July, narrowly exceeding expectations of economists polled by Econoday who gave a forecast of 155,000 for July. These figures signal slight growth for the U.S. job market but at a slower pace, similar to the economy as a whole.
Several parallels can be drawn between the actions of the Federal Reserve to the current state of affairs in the U.S. labor market. During his press conference yesterday, Fed Chair Jerome Powell was quick to mention that markets should not expect many more rate hikes. The Fed viewed yesterday’s cut as insurance against slowing growth while Powell reaffirmed that the economy is making forward progress.
The labor market has revealed similar indications over the past few months, beginning with May’s report in which job growth was the weakest seen in several years. At the time we wondered whether it was the start of a slowdown or just a small pullback in a long-term uptrend.
In retrospect, it turns out it was neither extreme but somewhere in the middle. May can certainly be viewed as the first month of slowing job growth, but the trend is still a growing job market. Much like Jerome Powell suggested, the economy is still growing but at a slower pace.
With that in mind, we can expect fewer job additions in the near future as the economy attempts to recover and works toward a 3% growth rate. Economists are predicting a 170K increase in July for non-farm payrolls, a strong number considering the current economic climate.
The job market is considered a pillar of the US economy and a 170,000 increase would certainly reinforce that. It would also help to confirm the emerging pattern of a slower growth rate. In any case, traders should be aware that economic reports such as these can move markets and prepare accordingly.
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