ADP misses estimates with 98,000 jobs added in June, gold rallies

The U.S. labor market softened more than expected in June, sending gold to session highs as traders priced in a greater chance of Fed rate cuts.

The U.S. labor market added fewer jobs than expected in June, with private payrolls rising 98,000 — below the 113,000 consensus — as ADP data released Wednesday showed a cooling hiring environment that pushed gold prices higher.

"The pace of hiring is telling a story of both supply and demand," Nela Richardson, chief economist at ADP, said in a statement. "We know it's taking people longer to find work, but there also are signs of labor supply constraints in certain industries."

The June figure marked a slowdown from May's revised gain of 122,000, according to ADP. About half of the month's job creation was concentrated in education and health services, while the financial activities sector added 14,000 positions. Annual pay for workers who remained in their jobs rose 4.9%, ADP said, a deceleration from the 5% pace recorded in May and the smallest increase since 2021.

The weaker-than-expected reading raises the stakes for Thursday's official nonfarm payrolls report from the Bureau of Labor Statistics, which economists forecast will show a gain of 115,000 positions. A miss there could reinforce expectations that the Federal Reserve will need to pivot toward a more accommodative stance, a scenario that typically benefits gold as a store of value and weighs on the dollar.

The ADP report is the first major labor market indicator for June and often serves as a preview for the government's more comprehensive employment situation report. Over the past three months, nonfarm payrolls have averaged roughly 200,000 per month, well above the estimated 100,000 breakeven rate that economists at the Atlanta Fed calculate is needed to keep the unemployment rate stable. A sustained slowdown toward that threshold would give the Fed cover to begin easing.

Gold prices rose near session highs immediately after the release, extending gains from earlier in the week as traders reassessed the rate outlook. The dollar edged lower against a basket of major currencies, while two-year Treasury yields declined roughly 5 basis points to 4.28% as the data reinforced expectations that the Fed's next move will be a cut rather than a hold. The S&P 500 opened modestly lower as investors weighed the implications of a softening labor market against the prospect of easier monetary policy.

The last time ADP printed below 100,000 was in January 2024, when the economy added 89,000 private-sector jobs. That report preceded a period of heightened market speculation about Fed easing, with two-year Treasury yields falling 35 basis points over the following month and gold rallying roughly 4%. The current setup mirrors that period in some respects, though inflation remains stickier now than it was then, complicating the Fed's calculus.

For the Fed, the data adds to a growing body of evidence that the labor market is normalizing after two years of above-trend growth. Chair Jerome Powell has repeatedly said the central bank is watching for signs of unexpected weakening, and a string of soft employment prints could accelerate the timeline for rate cuts. Markets currently price a 68% probability of a quarter-point reduction at the September Federal Open Market Committee meeting, according to CME FedWatch data, up from 55% a week ago.

The June ADP print also provides a data point for the broader narrative around the so-called soft landing — the scenario where inflation cools without a sharp rise in unemployment. While the labor market remains historically tight by most measures, the deceleration in hiring and wage growth suggests the economy is losing momentum. If Thursday's payrolls report confirms the trend, the debate at the Fed will shift from whether to cut to how fast.

This article is for informational purposes only and does not constitute investment advice.