The ADP national employment report shows a decline of 31,000 in private employment in November after a small upward revision to up 47,000 in October. The November decline is below the consensus of up 20,000 in the Econoday survey of forecasters. The fall in private payrolls is broad-based and points to increased job cut activity or workers switching jobs for better compensation, not just elimination of open positions and cutbacks in planned hiring.

Unusually, the decrease in November reflects payroll declines of 120,000 in small businesses (1-49 workers) which appear to have taken the brunt of uncertain economic conditions and responded with eliminating jobs. However, there were 51,000 new hires at medium-sized firms (50-499) and 39,000 at large businesses (500+). Small firms appear to be at a disadvantage in the current labor market.

In November, goods-producers' payrolls are down 19,000. An increase of 8,000 in natural resources and mining was more than offset by drops of 9,000 in construction and 18,000 in manufacturing.

Service-providers' payrolls are down 13,000 in November. Modest increases of 33,000 in education and health services and 13,000 in leisure and hospitality reflect continued demand for workers in these two industries. There is also a small rise of 1,000 in trade, transportation, and utilities that probably is related to holiday season demand for delivery services. There are decreases of 26,000 in professional and business services, 20,000 in information, 9,000 in financial activities, and 4,000 in other services that outweigh the increases.

The ADP pay insights point to further moderation in the pace of pay increase. The median change in annual pay for job-stayers in November is 4.4 percent, down from 4.5 percent in October. The annual increase for job-changers is 6.3 percent, down from 6.7 percent in October. Job-changers are seeing the lowest year-over-year increase since 6.3 percent in January 2021.

Modest job growth expected at 20K for private payrolls.

The national employment report from Automated Data Processing Inc. is computed from ADP payroll data and offers advance indications on the U.S. workforce. ADP's data cover more than 500,000 companies totaling more than 25 million employees. The report is produced by ADP Research Institute in collaboration with Stanford Digital Economy Lab.

Market players have become accustomed to the excitement on employment Friday and realize the rich detail of the monthly employment situation can help set the tone for the entire month. While economists have improved their nonfarm payroll forecasts over the years, it is not unusual to see surprises on employment Friday. To that end, the ADP's national employment report can help improve the payroll forecast by providing information in advance of the employment report.

The employment statistics also provide insight on wage trends, and wage inflation is high on the list of enemies for the Federal Reserve. Fed officials constantly monitor this data watching for even the smallest signs of potential inflationary pressures, even when economic conditions are soggy. If inflation is under control, it is easier for the Fed to maintain a more accommodative monetary policy. If inflation is a problem, the Fed is limited in providing economic stimulus.

By tracking jobs, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline - boosting up bond and stock prices in the process.