Private payrolls grew more than expected in October. Companies added 42,000 jobs, topping the 22,000 consensus estimate, according to ADP.
September was revised to show 29,000 jobs lost, 3,000 fewer than initially reported. The October gain provides some hope the labor market isn't sinking rapidly.
Trade, transportation and utilities led with 47,000 jobs added. Education and health services grew by 26,000, while financial activities added 11,000.
Not all sectors showed growth. Despite the AI boom, information services lost 17,000 positions. Other sectors posting declines:
Manufacturing continues struggling despite President Trump's tariffs aimed at bringing factory jobs back to the US.
All job creation came from large companies. Firms with 250+ workers added 76,000 jobs. Meanwhile, smaller businesses lost 34,000.
That's a concerning trend. Small businesses are responsible for three of every four jobs, noted ADP's chief economist Nela Richardson.
"While big companies make headlines, small companies drive hiring," Richardson told CNBC. "So to see that weakness at the small company level is still a concern, and I think that's one of the reasons why the recovery has been so tepid."
Despite weak job growth, pay continues climbing. Workers staying in their jobs saw 4.5% year-over-year raises, same as September. Job switchers got 6.7% bumps, up slightly from last month.
"Pay growth has been largely flat for more than a year, indicating that shifts in supply and demand are balanced," Richardson said.
By ADP's count, job growth has averaged about 60,000 monthly but tailed off significantly in the second half of the year.
This ADP report matters more than usual because the government shutdown has suspended official data. The Bureau of Labor Statistics, like all government agencies, stopped data collection and releases.
Had the BLS report been released Friday, Wall Street expected it to show 60,000 jobs lost and unemployment rising to 4.5%.
Without that official data, the ADP report becomes the primary window into labor market health. Other indicators this week include Challenger layoff announcements Thursday and state-level jobless claims.
Recent data from jobs site Indeed shows employment postings at their lowest since February 2021 - another worrying sign.
Federal Reserve officials have expressed concern over the labor market. It's now overtaken inflation as the central bank's primary focus.
The Fed approved a quarter-point rate cut last week, bringing the key rate to 3.75%-4%. More cuts may come if labor weakness continues.
Fed policymakers will scrutinize whatever data they can get during the shutdown to gauge whether the job market is stabilizing or deteriorating.
The 42,000 jobs added beats expectations and looks better than September's losses. But the details reveal underlying weakness.
Small businesses losing 34,000 jobs while large companies add 76,000 suggests the recovery is narrow and fragile. With small firms responsible for most hiring, their struggles matter enormously.
Manufacturing declining despite tariffs shows Trump's trade policy hasn't delivered the promised factory job boom. Tech shedding 17,000 information services jobs despite AI hype reveals that not all sectors are benefiting from the technology boom.
The government shutdown creates a frustrating information vacuum. Without official BLS data, policymakers and investors must rely on private surveys like ADP. While useful, these don't capture the full picture of employment, unemployment, and labor force participation.
ADP showing 42,000 gains while Wall Street expected the official report to show 60,000 losses highlights significant divergence. That gap makes it harder to assess labor market health accurately.
Pay growth remaining steady at 4.5% for existing workers suggests the job market isn't collapsing. If employment were in freefall, wage growth would be decelerating faster.
But averaging 60,000 monthly job gains this year - and slowing in the second half - isn't strong growth. It's barely keeping pace with population growth and labor force expansion.
The Fed cutting rates signals concern about labor market weakness. If October's modest gains represent stabilization, that's positive. If they're just a temporary blip before further deterioration, the Fed may need to cut more aggressively.
For workers, the bifurcation matters. Large company employees see relative stability. Small business workers face uncertainty as their employers shed jobs. That divide could widen if small businesses continue struggling.
The next few months will be critical. If job growth remains weak and small businesses keep cutting, recession fears will intensify. If hiring stabilizes and broadens to include smaller firms, the labor market may have found a soft landing.
Right now, we're in uncomfortable territory - not collapsing but not thriving either. And with the government shutdown blocking official data, the uncertainty only grows.