The U.S. labor market is at a pivotal moment. Two significant data points offer contrasting signals about the direction the employment market is heading. These conflicting narratives could ripple through the economy and could have a dramatic effect on the market in the weeks and months ahead.
The Bureau of Labor Statistics (BLS) Employment Situation report is due out this morning at 8:30 a.m. It provides key insights into nonfarm payroll growth, the unemployment rate, and wage changes in the U.S. labor market.
The BLS report is expected to reflect relative stability, with consensus forecasts of 160,000 jobs added, a 4.0% unemployment rate, and 0.3% wage growth. The optimism stems from private-sector strength in health care, hospitality, and retail, despite federal headwinds.
Payroll processor Automatic Data Processing (ADP) issued its own report yesterday that offers a far more subdued view of the situation. It says just 77,000 private jobs were added in February. While it is supportive of the overall narrative, the jobs growth is much less than what was expected.
However, outplacement services firm Challenger Gray & Christmas released its own report of announced job cuts yesterday and revealed that U.S. employers announced 172,017 job cuts in February 2025, a 245% surge from January’s 49,795 and more than double the 84,638 cuts from February 2024. It is the highest number of February cuts since 2009.
These are seemingly at odds with one another and a lower than expected BLS report could tank the stock market, which is already experiencing extreme volatility due to President Trump’s trade policies.
The Challenger data paints a fairly grim picture, one driven by nearly 63,600 job cuts tied to the Department of Government Efficiency (DOGE), including more than 62,200 federal jobs, an incredible 41,311% jump from last year’s 151 government cuts.
Private sectors like retail (38,956), technology (14,554), and consumer products (10,625) also faced heavy reductions. This 172,000 figure, the largest monthly total since July 2020, suggests employers are bracing for uncertainty, possibly linked to Trump policies like hiring freezes or looming tariffs.
However, Challenger historically tracks announced cuts, not immediate separations. That means the full impact may lag. For example, January’s 49,795 announced cuts coincided with a BLS report showing job gains of 143,000. It underscores how hiring can offset losses. But a sustained trend of such magnitude could signal much broader contractions ahead, particularly if federal layoffs hit harder in March or April.
Still, the difference between the BLS and Challenger data stems from their methodology. BLS measures net payroll changes via its Current Employment Statistics survey (for the week including February 12) and unemployment via the Current Population Survey, not just announced cuts.
Many of February’s 172,000 layoffs, especially late-month federal ones, may not register until later reports, as workers remain on payrolls during notice periods. If the BLS surprises with a weak print, say closer to ADP’s numbers, it could hint at Challenger’s cuts taking root sooner. If the consensus forecast holds, however, a 160,000 gain could suggest greater resilience with any impact delayed.
Payroll companies like ADP and Paychex (PAYX), which provide human resources, payroll processing, and compliance services, are sensitive to employment trends. Their revenue hinges on the number of employees processed (ADP serves 25% of the U.S. private workforce) and small-to-medium business (SMB) activity (Paychex’s core market).
If the BLS report meets expectations, ADP and Paychex stocks could see a modest lift. Stable employment and a 4% unemployment rate signal steady demand for payroll services, especially from private-sector clients.
ADP stock trades around $302 per share while PAYX goes for about $150 per share. They might gain if markets interpret the BLS report as a “soft landing” scenario. However, a weak BLS number could spark a sell-off, as it might more closely align with Challenger’s cuts as it raises fears of declining payroll volumes.
Longer term, the 172,000 announced cuts pose a bigger threat over time. Federal layoffs, if sustained, shrink ADP’s government-adjacent business, while private-sector cuts in retail and tech could dent Paychex’s client base.
A 245% month-over-month increase suggests a structural shift, not a blip. If these cuts materialize in BLS data by spring, both companies could face revenue pressure. ADP’s 2024 revenue grew 6% to $19 billion, tied to employment growth.
A reversal could stall this. Paychex, with $5.3 billion in 2024 revenue, relies on SMBs that may cut staff or close amid economic uncertainty, like tariffs or the DOGE fallout. Historically, payroll stocks dip during recessions – ADP fell 20% in the 2008-2009 financial crisis – but recover when hiring rebounds.
Because both companies offer diversified services such as HR outsourcing and benefits administration, they possess cushions that could soften any downturn. ADP’s scale and Paychex’s SMB focus could benefit from firms outsourcing amid cost-cutting.
Yet, a prolonged jobs slump would certainly test this resilience. They also pay dividends that yield 1.9% and 2.6%, respectively, that might attract income investors if growth slows.
Today’s BLS report will set the tone for the immediate future, not just for ADP and Paychex, but the market as a whole.The Challenger report, however, offers a warning of what might be in store.
Investors should watch for BLS revisions in the months ahead. We also have promises from numerous companies committed to spending billions of dollars in the U.S. in the months and years ahead to build new factories and create new jobs.
Any downturn seen in employment could be relatively short-lived, but the effect of the news today could be dramatic.
