Analysis: Challenger, ADP Reports Point to Possible Downside Surprise in Monthly US Jobs Report on Friday

(MaceNews) - Thursday's reports related to the labor market suggest the possibility of a downside surprise in the August Employment Situation report set for release at 8:30 ET on Friday. Market expectations ahead of the Thursday numbers looked for nonfarm payrolls up 77,000 in August with the unemployment rate is expected at 4.3%.

First, the Challenger report for August showed a 38.5% rise in announced layoff intentions to 85,979 and layoff plans were broad-based. Hiring intentions in August were a meager 1,494, the lowest in since Challenger started reporting these in 2009. The Challenger report noted the “troubling sign” of weak hiring plans going into September when retailers, wholesalers, and transportation companies typically ramp up hiring for the holiday season.

Second, the ADP National Employment Report had 54,000 added private sector jobs in August, only about half the 106,000 in July. Job gains were mixed and much of the increase can be attributed to a single sector – a gain of 50,00 in leisure and hospitality. These are not the sort of jobs that are known for stable employment and reasonable pay and benefits. Also, the decrease of 17,000 in trade, transportation, and utilities is also not a good sign for holiday hiring intentions.

Third, the level of initial jobless claims are starting to creep higher, albeit unevenly. Recent weeks have seen a seesaw between rises and falls, but the trend is upward. New claims in the August 30 week were up 8,000 to 237,000, the highest since 239,000 in the May 24 week. September claims are going to see the start of fillings from those government workers who took buyouts during the peak of the DOGE layoffs and who did not retire and exit the labor force.

Looking at the trends for August employment reports from the Bureau of Labor Statistics (BLS) compared to market expectations, August has a strong tendency to come in below the consensus, although it is often revised higher later. August can present particular problems in gathering the survey data since many businesses are affected by vacation schedules, hence the revisions. However, it should also be noted that August has a 5-week survey reference period that ended August 16. This means the report may have fewer problems in that regard this year.

Finally, it is a chilling possibility that Trump officials will not like what they see in the BLS report and alter the data. This is the first month in which the integrity of the data might be credibly challenged. Fed policymakers are going to be relying heavily on the content of this report to make their rate decision at the September 16-17 FOMC meeting. Accurate and unbiased numbers will be crucial.