US private payroll growth came in weaker than expected in August, highlighting a loss of momentum in the labor market. At the same time, factory orders rebounded in July, pointing to continued strength in parts of the manufacturing sector.
US Private Payroll Growth Slows in August
Private-sector employment increased by 38,000 jobs in August, according to the ADP National Employment Report.
That was below economists’ expectations for a gain of 48,000 jobs.
July’s increase was revised higher to 46,000 from the previously reported 44,000.
The data suggests that US hiring remains positive, but employment growth is continuing to slow compared with earlier in the year.
Health and Education Lead Job Gains
The strongest employment growth came from education and health services.
The sector added 45,000 jobs during August.
Leisure and hospitality also performed well, adding 16,000 positions.
Construction employment increased by 12,000 jobs, while financial activities added another 6,000.
These gains helped offset weakness in several other areas of the economy.
Manufacturing and Business Services Lose Jobs
Manufacturing employment fell sharply in August.
The sector lost 17,000 jobs, while professional and business services cut 16,000 positions.
Employment also declined in trade, transportation and utilities.
Additional job losses were recorded in information services, natural resources and mining.
The sector-level figures show that hiring conditions remain uneven across the US economy.
ADP Data Comes Ahead of Key US Jobs Report
The ADP employment report is produced alongside the Stanford Digital Economy Lab.
However, economists often caution that the report does not always closely track the official employment figures published by the Bureau of Labor Statistics.
Attention will now turn to the more closely watched US jobs report due later in the week.
The latest BLS data showed that there were approximately 1.05 job openings for every unemployed person in July.
That ratio was little changed from June and suggested that labor market conditions remain relatively stable.
US Labor Market Remains in Slow-Hire, Slow-Fire Mode
Economists continue to describe the labor market as being in a “slow-hire, slow-fire” environment.
Businesses are not hiring aggressively, but widespread layoffs have also remained relatively limited.
However, the stronger employment growth seen during the spring appears to have lost momentum.
Policy uncertainty has also weighed on hiring conditions, including the impact of import tariffs.
Immigration Policy May Be Affecting Job Growth
Economists have debated whether artificial intelligence is beginning to reduce hiring across some industries.
So far, however, there is little clear evidence that rapid AI adoption is the main factor behind weaker job growth.
Instead, some analysts believe changes in immigration policy may be having a larger effect.
Deportations and the cancellation of work authorization for some immigrants could reduce the available labor supply and weigh on payroll growth.
Economists Expect a Modest Payroll Recovery
Economists surveyed by Reuters expect private payrolls to increase by around 45,000 jobs in August after a 30,000 gain in July.
Overall nonfarm payrolls are expected to rise by approximately 56,000.
That would mark a recovery from the unexpected 23,000 decline recorded in July.
Part of the rebound could come from stronger local government education employment.
Spring Hiring Momentum Appears to Have Faded
Oliver Allen, senior US economist at Pantheon Macroeconomics, said a stronger August employment reading would need to be viewed in the context of weak hiring over previous months.
In his view, the broader picture still suggests that the improvement in employment growth seen during the spring has already lost momentum.
The US unemployment rate is expected to remain unchanged at 4.1%.
However, some economists believe the August report could disappoint.
Immigration Changes Add Downside Risk
Recent changes to Temporary Protected Status for hundreds of thousands of Haitians may have affected work authorization and employment conditions.
Bill Adams, chief economist at Fifth Third Commercial Bank, expects nonfarm payrolls to fall by 25,000 jobs in August.
He argued that immigration policy changes may have had a greater impact on hiring than artificial intelligence.
Tariff uncertainty may also be contributing to weaker business confidence.
US Factory Orders Rebound in July
While the labor market showed signs of cooling, manufacturing data was more encouraging.
Factory orders increased 0.9% in July, according to the US Commerce Department’s Census Bureau.
That followed a 0.2% decline in June.
On a year-over-year basis, factory orders were up 6.5%.
The rebound suggests that demand for manufactured goods remains relatively strong despite broader economic uncertainty.
Aircraft Orders Drive Manufacturing Growth
The July improvement was largely driven by a sharp increase in orders for civilian aircraft and parts.
Those orders jumped 12.7%.
Orders for motor vehicle bodies, parts and trailers increased 0.4%.
Machinery orders rose 0.8%.
However, orders for computers and electronic products declined 1.1% during the month.
Despite the monthly decline, computer and electronics orders were still 14.3% higher compared with a year earlier.
Orders for electrical equipment, appliances and components fell 0.3%.
AI Investment Continues to Support Manufacturing
Manufacturing represents roughly 9.4% of the US economy and continues to receive support from the rapid expansion of AI-related infrastructure.
The buildout of data centers and artificial intelligence systems is encouraging investment in equipment and technology.
However, supply chain disruptions and elevated input costs remain challenges.
Manufacturers have also reported higher costs linked to geopolitical tensions and import tariffs.
Business Equipment Spending Shows Mixed Signals
Orders for non-defense capital goods excluding aircraft, often viewed as an important indicator of business investment plans, were unchanged in July.
Earlier estimates had suggested a 0.2% increase.
Shipments of these core capital goods rose 1.2%, slightly below the initial estimate of 1.4%.
Despite the weaker figures, economists believe the slowdown may prove temporary.
AI Spending Could Keep Business Investment Strong
Recent data showed a sharp increase in US capital goods imports.
That suggests companies are still investing heavily in equipment.
The ongoing boom in artificial intelligence spending is also supporting imports and business investment.
As a result, manufacturing activity could remain resilient even if labor market growth continues to cool.
US Economy Sends Mixed Signals
The latest economic data paints a mixed picture of the US economy.
Private payroll growth slowed more than expected in August, while hiring weakened across manufacturing and several service industries.
At the same time, factory orders rebounded in July, supported by aircraft demand and continued AI-related investment.
Investors will now focus on upcoming labor market data to determine whether the slowdown in hiring is temporary or a sign of broader weakness in the US economy.
