US private sector adds fewer jobs than expected in August

Private sector employment in the US rose less than expected in August, according to data released by ADP on Thursday.

Employers added 163,000 jobs versus expectations for a 190,000 increase. Meanwhile, July's total was revised down to 217,000 from 219,000.

Small businesses with fewer than 50 employees added 21,000 jobs, while medium businesses with between 50 and 499 employees added 111,000 jobs. Large companies with 500 or more employees recruited an extra 31,000 people.

The goods-producing sector created 24,000 new jobs, while the services sector added 139,000 jobs, with the biggest contribution coming from professional/business services, which added 38,000.

Mark Zandi, chief economist at Moody’s Analytics, said: "The job market is hot. Employers are aggressively competing to hold onto their existing workers and to find new ones. Small businesses are struggling the most in this competition, as they increasingly can’t fill open positions."

Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, said: "Although we saw a small slowdown in job growth the market remains incredibly dynamic. Mid-sized businesses continue to be the engine of growth, adding nearly 70% of all jobs this month, and remain resilient in the current economic climate."

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the data was a bit disappointing but hardly a disaster.

"We're guessing that forecasts put too much weight on the sharp drop in jobless claims last month and not enough weight on the impact of the soft official payroll numbers for July, and a seasonal tendency for sub-trend August numbers. Remember, ADP's estimate is model-based, and prior payroll numbers play a big role. Still, the data suggest that the information ADP gathered from firms which use its payroll processing services was weaker than we expected, so we are nudging down our forecast for tomorrow's number to 170K.

"After July's 157K, that would trigger a great deal of slowdown talk, but that would be premature, in our view. All the indicators of labour demand we follow are very strong, and layoffs are still falling. Two soft months don't prove anything, and even if the trend in payroll growth really has dipped, the problem right now looks more likely to be lack of labour supply rather than waning demand."

Paul Ashworth, chief US economist at Capital Economics said the ADP report suggests a downside risk to its already-below consensus estimate that official non-farm payrolls increased by 180,000 last month. Consensus for August non-farm payrolls is 191,000.

"That said, the ADP survey does not have a great record as a predictor of the official figures, which are due out this Friday. In particular, the ADP estimate is partly based on lags of the non-farm payroll numbers, so the weakness in the August ADP might be partly due to the modest 157,000 gain in non-farm payrolls in July.

"Overall, perhaps a hint that employment growth has started to fade again after a very strong first half of the year. Nevertheless, employment growth is still well above the pace needed to absorb new entrants into the labour force, meaning that the unemployment rate, which is already unusually low, should continue to decline gradually."