Private sector employment grew by 22,000 jobs in the first month of the year, despite steep job losses in the professional and business services sector, payroll giant ADP reported Wednesday,
The professional and business services sector, which includes accounting and tax preparation, lost 57,000 jobs in January, the largest losses in a year and a half.
"This is the weakest number we've seen since August of 2024, and for the first time in several months, we actually saw a decline in large firms," said ADP chief economist Nela Richardson during a conference call Wednesday with reporters. "We also saw that decline in March of 2025, so it's not new. It's just that we haven't seen it in a while."
Accounting Today asked about what could be causing that drop in the job numbers for professional and business services.
"I think it's very directly tied to the low turnover that we're seeing right now," Richardson responded. "Workers are not quitting. They're staying put. We're seeing very few layoffs, very little hiring in that sector. With no turnover, we're not seeing firms actually needing to replace workers, so that's one factor. I think it's also tied to just overall uncertainty in the economy."
She noted from anecdotal data when ADP talks to clients that it's taking longer for them to make hiring decisions. Another factor is the hybrid work environment that has emerged over the years with employees working from home and the office.
"It's this continued downward pressure that comes from hybrid work," said Richardson. "Professional/business services is really two big sectors. One is more of those high-paying professional jobs, but also there's a lot of administrative support services and a more hybrid work environment, which we've seen take root since the pandemic. There's less of a need for continued hiring and support and administrative functions."
Richardson pointed out that the accounting sector in particular has its own issues with the accountant shortage.
"Of course, accounting itself continues to be a supply chain challenge," she said. "I want to note that every occupation is different, and accounting is one where it's more of a supply shortage than those three factors. And so when I look at these numbers, there are two forces at play. This is not just for professional/business services. I would even apply this to construction. Sometimes we're seeing employers pull back on hiring or delay hiring or change hiring patterns, but at the same time, there are some skilled workers in the economy that are not being replaced when it comes to a retiring workforce. We're not seeing young people move into those fields, for example, or those are sectors that have been touched by lower immigration. And so we have to be careful when we look at these negative numbers. It's really dependent on the granulated data, and it can be occupation specific."
Annual pay growth for people who stayed at their jobs changed little in January at 4.5% year-over-year. For those who changed jobs, annualized pay growth slowed to 6.4% from 6.6%. For professional and business services, the rate of pay growth for job stayers was 4.3%.
Overall, January proved to be a lackluster month for hiring, with the education and health services sector being the standout by adding 74,000 jobs. Leading the slowdown was the manufacturing industry, which lost 8,000 jobs in January and has lost jobs every month since March 2024, followed by professional and business services, and large employers. The goods-producing sector added only 1,000 jobs overall for the month, while the service-providing sector gained 21,000 jobs.
Small businesses with between one and 19 employees added a total of 30,000 jobs in January, but businesses with between 20 and 49 employees lost an equal number of 30,000 jobs, for a net gain of zero at small businesses. Medium establishment fared better, with a gain of 37,000 jobs at companies with between 50 and 249 employees, and 4,000 jobs at businesses with between 250 and 499 employees. Large establishments with 500 employees or more lost 18,000 jobs in January.
ADP also made some revisions and changes in how it is counting jobs this year. The total number of jobs added in December was revised downward from 41,000 to 37,000. The January 2026 report is also reflecting a scheduled annual revision of the ADP National Employment Report. The data series has been reweighted to match the U.S. Bureau of Labor Statistics' Quarterly Census of Employment and Wages benchmark data through March 2025. Starting this month, in addition to the annual benchmark revision, the ADP National Employment Report will also reflect data from the most recent QCEW release.
"In doing so, we did revise down our 2025 estimates," said Richardson. "Those numbers for the whole year are now 398,000. That's about 50% of what we measured under this new benchmark in 2024 and, in fact, we've seen a dramatic slowdown since 2023 coming out of that pandemic, where we saw about 1.9 million jobs created in 2023. In 2024, 771,000 private sector jobs [were] created, and now in 2025, 398,000 jobs [were] created, and all of that tied to the latest re-benchmarking of the ADP payroll data."
