US private sector adds 195,000 jobs in August

US private sector employers ramped up hiring in August, adding the most jobs in four months and signalling continued tightness in the labour market despite uncertainty about the US-China trade war and fears about slowing domestic growth.

Private payrolls increased by 195,000 last month from 142,000 in July, according to payroll processor ADP. The figure topped expectations of 149,000, according to a survey of economists by Reuters. It marked the highest growth since April.

Mid-sized companies led the way adding 77,000 jobs while small businesses added 66,000 jobs and large employers added 52,000.

Despite the ongoing US-China trade war and the first contraction in the US manufacturing sector in three years, the ADP report showed manufacturing jobs rose by 8,000, though natural resources and mining jobs fell by 2,000.

US stock futures were little changed following the report but Treasury yields extended their rise with the yield on the 10-year up 6.2 basis points to 1.521 per cent. Yields move inversely to price.

The data follow a sharp drop in the ISM manufacturing survey’s employment index and come ahead of Friday’s closely watched non-farm payroll report from the labour department. While economists expect the employment weakness signalled by the ISM overstates the impact on jobs as it is acutely affected by the trade turbulence they do forecast payroll growth to slow in to the end of the year.

Tightness in the labour market and a historically low unemployment rates but sluggish inflation that remains below the Federal Reserve’s 2 per cent target alongside the US-China trade war have complicated the central bank’s monetary policy outlook.

The weakness in America’s manufacturing sector and fears that trade uncertainty are weighing on domestic growth have seen markets pencil in a 25 basis point rate cut by the Fed.

The expectations come despite chair Jay Powell’s remarks in July that the loosening in July was just a “mid-cycle policy adjustment” and not the start of a rate cutting cycle. He has since also said that fitting trade uncertainty into its policy framework was “a new challenge” and said that setting trade policy was “the business of Congress and the administration, not that of the Fed”.

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