A monthly report from ADP showed that private payrolls rose more than expected in October. The report offers a partial glimpse into the job market, which has been generally weakening and raising broader concerns about economic growth.
The services sector, which is the largest part of the US economy, expanded in October more than Wall Street expected, according to the Institute for Supply Management. The report shows that while overall business activity grew, employment was still contracting.
“The survey provides a reassuring sign that economic growth persisted in October despite the government shutdown,” Bill Adams, chief economist for Comerica Bank, wrote in a note to investors.
A weaker job market remains a big concern for the Fed. The central bank cut its benchmark rate for the second time this year at its most recent meeting, in part to help bolster the economy amid a weakening job market. Fed Chair Jerome Powell and several other Fed officials have expressed concerns about more rate cuts, as inflation remains stubbornly high and could be fuelled by lowering rates.
The mix of a weaker job market and hot inflation leaves the Fed in a tough position.
“For Fed watchers, this ADP report should make it clear that a December rate cut is now in play,” said Jamie Cox, managing partner for Harris Financial Group, in a note to investors. “We are nearing stall speed in the labor market, and that will get the Fed’s attention.”
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Wall Street has tempered its expectations for another interest rate cut in December. Investors are now forecasting a 65 per cent chance that the Fed will cut interest rates, according to CME FedWatch. That’s down from a 90 per cent chance just prior to the previous rate cut.
Treasury yields rose in the bond market. The yield on the 10-year Treasury rose to 4.15 per cent from 4.09 per cent late Tuesday. The yield on the two-year Treasury rose to 3.62 per cent from 3.58 per cent late Tuesday.
European markets gained ground and Asian markets closed mostly lower.
