Private sector job creation slowed significantly in February, raising concerns about an economic downturn, payroll processing firm ADP reported Wednesday.
Job Growth Falls Below Expectations
Companies added just 77,000 new workers in February, a sharp decline from the upwardly revised 186,000 in January. The figure also fell well short of the 148,000 consensus estimate from Dow Jones, marking the slowest job growth since July.
The data comes amid growing concerns that the U.S. economy is losing momentum, particularly as President Donald Trump’s tariff policies raise fears of renewed inflation. ADP reported that annual pay growth remained steady at 4.7% in February.
Market Reaction and Economic Uncertainty
Following the report, stock market futures pared their earlier gains while Treasury yields remained mixed.
“Policy uncertainty and a slowdown in consumer spending might have led to layoffs or a slowdown in hiring last month,” said ADP Chief Economist Nela Richardson. “Our data, combined with other recent indicators, suggests a hiring hesitancy among employers as they assess the economic climate ahead.”
Despite overall positive economic indicators, business sentiment surveys have reflected rising concerns about the impact of Trump’s tariffs. Some economists fear a worst-case scenario of stagflation, where slowing economic growth is coupled with rising prices.
Job Gains and Losses by Sector
The February ADP report highlighted notable declines in key sectors:
- Trade, transportation, and utilities: -33,000 jobs
- Education and health services: -28,000 jobs
- Information services: -14,000 jobs
Despite Trump’s commitment to expanding artificial intelligence-related industries, uncertainty in the AI sector contributed to the job losses in information services.
However, some industries reported job gains:
- Leisure and hospitality: +41,000 jobs
- Professional and business services: +27,000 jobs
- Financial activities and construction: +26,000 jobs each
- Manufacturing: +18,000 jobs
Interestingly, job growth was nearly balanced between services (+36,000) and goods-producing sectors (+42,000), a rare occurrence in the service-dominated U.S. economy.
Employment Growth by Company Size
Large businesses saw the most job growth, with companies employing 500 or more workers adding 37,000 jobs. Meanwhile, small businesses with fewer than 50 employees shed 12,000 positions.
Looking Ahead: The Official Jobs Report
The ADP report serves as a precursor to the official U.S. Bureau of Labor Statistics (BLS) nonfarm payrolls report, due Friday. However, the two reports often diverge due to differing methodologies. In January, the BLS reported private payroll growth of just 111,000—well below ADP’s estimate.
Economists surveyed by Dow Jones expect the Friday report to show an increase of 170,000 jobs and an unemployment rate holding steady at 4%.
A Warning Sign for the Labor Market?
The sharp slowdown in private sector hiring could be an early indicator of economic turbulence ahead. As businesses assess ongoing policy uncertainty and trade tensions, labor market trends in the coming months will be closely watched.