ADP Report Reveals Job Losses, Manufacturing Contracts for Ninth Month

[Ben Graham]

Imagine if you could be a fly on the wall at the next Federal Reserve meeting. From a new round of job losses in November to a lengthy contraction in the U.S. manufacturing sector, when the Fed meets Dec. 9-10, there will be plenty for the Fed governors to talk about.

Gold in A Holding Pattern

Since notching a fresh record high in October, gold trade has turned consolidative and sideways as the market takes a breather after its 50%+ gain this year. The long-term uptrend in gold remains intact and these latest signs of renewed economic weakness are positive for the precious metal. Dips toward the $4,000 level have been quickly bought by long-term investors and any weakness in gold is short-lived.

Fresh Look at Labor Market – Small Businesses Lead Decline

In November, private-sector ADP payrolls tumbled by 32,000, while companies with less than 50 employees shed 120,000 jobs—that’s the biggest one-month decline since May 2020. The new ADP report, coming just ahead of the December Fed meeting, shines a spotlight on weakness in the jobs market and gives more ammunition for Fed governors who are pushing for an interest rate cut before the end of the year. Policymakers have been divided on another rate cut given that inflation still remains high and above the Fed’s 2% target rate, but the odds appear to be tipping in favor of a rate cut.

Manufacturing Sector Slows Amid Increased Costs for Materials from Tariffs

Also in November, U.S. manufacturing activity slowed for the ninth consecutive month, according to the Institute for Supply Management. The ISM’s PMI report came in at 48.2, a decline from 48.7 in October. Any reading under 50 is a signal the manufacturing sector is contracting, not expanding. The November contraction was widespread and included the apparel, textiles, paper products, chemicals and transportation equipment industries. Manufacturers point to tariffs as the main factor causing the contraction. In many cases, it now more expensive for U.S. producers to source materials from abroad that are needed in their manufacturing processes. The ISM survey also found that manufacturers were holding back on hiring as they tried to manage the higher production input costs and slowdown in orders.

What It Means for Gold

Gold prices jumped following the news of the ADP jobs losses as it boosted expectations the Fed will cut rates at its December meeting. Lower rates are positive for non-interest bearing precious metals. Meanwhile, weakness in the manufacturing sector supports demand for gold as a safe-haven asset. Spot gold is trading just above $4,200 an ounce with bullish momentum growing. Prices are likely to remain range-bound into the Fed meeting, and a breakout above $4,373.20 would signal gold is extending into a new bullish phase, with a target at $5,000 in 2026.

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