U.S. private-sector employment increased by 38,000 jobs in August, falling short of economists’ expectations for a gain of 48,000 and marking the weakest month of hiring since January, according to the ADP National Employment Report released Wednesday.
The figure was down from a revised 46,000 in July and came in well below the consensus forecast. Manufacturing shed 17,000 jobs during the month, while services-providers added 48,000, led by education and health services, leisure and hospitality, and financial activities. The split between goods-producing losses and services gains painted a picture of an economy where hiring has concentrated in a handful of sectors.
Almost all of the gains came from large businesses. Companies with 500 or more employees added 34,000 positions, while small firms with fewer than 50 workers contributed just 3,000. Mid-sized companies, those with 50 to 249 employees, added 2,000 jobs. The concentration of hiring at large firms suggests smaller businesses remain cautious amid rising costs and economic uncertainty.
The ADP report, produced in collaboration with Stanford Digital Economy Lab, is based on anonymized payroll data from more than 26 million U.S. employees. While it does not always align with the government’s official jobs report, it provides an early read on the labor market that traders and policymakers watch closely.
Manufacturing Weakness Persists
The 17,000-job decline in manufacturing was the steepest sectoral loss in the report. The weakness comes as factories face higher input costs from elevated oil prices and ongoing supply chain disruptions related to the Strait of Hormuz situation. Brent crude has traded above $90 per barrel for the past two weeks, adding to cost pressures that have been squeezing manufacturer margins since mid-year.
Goods-producing businesses overall cut 10,000 positions, with construction adding 12,000 jobs but manufacturing and mining both reporting declines. The construction gains likely reflect continued demand for housing and infrastructure projects, even as higher borrowing costs have slowed residential development in many markets.
Education and health services led the services side with 45,000 new positions, continuing a trend that has held throughout 2026. Leisure and hospitality added 16,000 jobs, and financial activities posted moderate gains. Outside those sectors, though, hiring was thin. Retail trade and professional services both showed little movement, suggesting businesses in those areas are maintaining headcounts rather than expanding.
The geographic distribution of hiring also tells a story. The ADP data showed that large companies, which tend to be headquartered in major metropolitan areas and operate nationally, drove nearly all the gains. Small and mid-sized businesses, which are more sensitive to local economic conditions and borrowing costs, added very few jobs. That pattern suggests the labor market is being sustained by a relatively small number of large employers rather than broad-based business confidence.
Eyes on Friday’s Nonfarm Payrolls
The ADP data arrives two days before the Labor Department’s nonfarm payrolls report for August, which economists expect to show a gain of 56,000 positions. That would represent a recovery from the unexpected loss of 23,000 jobs reported in July, though it would still fall well below the pace needed to keep up with population growth.
The weaker-than-expected ADP print could shift market expectations around the Federal Reserve’s next move. Fed funds futures currently price in a 68% chance of a rate hike at the September meeting, up sharply from earlier in the summer. The higher probability reflects rising energy costs and sticky inflation data, but a softening labor market could complicate the case for tighter policy.
The Fed faces an awkward dilemma. A rate hike would aim to prevent oil-driven inflation from becoming entrenched, but it would also risk accelerating the slowdown in an already-tiring labor market. The nonfarm payrolls report on Friday will provide the final data point before the September 17 FOMC meeting, and markets will parse every line of it for signals about where the central bank is headed.
Wage growth showed signs of cooling. Annual pay increases for workers who stayed in their jobs came in at 4.4%, while job-switchers saw 6.1% gains. Both figures were slightly lower than the prior month, suggesting the tight labor market that drove rapid wage gains in 2024 and 2025 has loosened further. For the Fed, slower wage growth is a double-edged sword: it reduces one source of inflationary pressure while also signaling that workers have less bargaining power.
Oil and Inflation Complicate the Picture
The August ADP report adds to a string of mixed economic data. Consumer spending has held up, but business investment has softened. The manufacturing sector, in particular, has been under pressure from higher energy costs and weakening global demand. Oil’s surge past $90, driven by U.S.-Iran tensions near the Strait of Hormuz, has raised the cost of diesel and other industrial fuels, adding to the headwinds facing factories.
The European bond market has also been under stress, with French and Italian government yields hitting levels not seen since the 2008 financial crisis. The global selloff in bonds reflects fears that energy-driven inflation will force central banks to maintain higher rates for longer, weighing on economic growth worldwide.
For workers, the picture is uneven. Those in healthcare, education, and hospitality continue to find jobs easily. Manufacturing and retail workers face a tighter market with fewer openings. The gap between sectors is widening, and the national numbers mask very different experiences depending on where someone works and what skills they bring.
The next two days will be crucial for market positioning. If Friday’s nonfarm payrolls confirm the ADP’s picture of sluggish hiring, rate-hike expectations could ease, potentially providing relief for equities and crypto markets that have sold off on tightening fears. If the government report shows unexpected strength, the opposite could happen, pushing the Fed further toward a September increase and extending the pain in risk assets.
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