September was the private sector’s slowest month for new hires in almost three years—a sign the U.S. economic engine may be running out of steam.

U.S. companies added 89,000 workers to payrolls last month, falling well short of expectations of 160,000, according to payroll processor ADP. It was the single-worst month of job creation since January 2021.

Perhaps most concerning was the loss of 83,000 jobs at large firms, marking the second-biggest decline since the start of Covid.

At a sector level, professional and business services lost 32,000 workers, manufacturing shed 12,000, and trade, transportation, and utilities laid off 13,000.

“We are seeing a steepening decline in jobs this month,” said Nela Richardson, chief economist at ADP. “Additionally, we are seeing a steady decline in wages in the past 12 months.”

The average annual wage grew by 5.9%, the 12th consecutive monthly decline in wage growth and the slowest gain in two years.

A silver lining (or two)

The ADP employment report wasn’t entirely negative. Several sectors reported strong employment growth, but none more than leisure and hospitality, which hired a whopping 92,000 people.

The leisure and hospitality industries are booming as consumers continue to splurge on experiences instead of saving for a down payment on a house they probably can’t afford.

According to the Department of Commerce, household spending on recreation increased by 4.9% in August.

Economists also take a slowing labor market as a small victory because it may make the Fed think twice about further interest rate hikes.

“The labor market continues a trend of gradual cooling, just like the Fed seeks,” Derek Tang, an economist with LH Meyer/Monetary Policy Analytics, told Bloomberg last month. “We are seeing negative revisions to previous months, slightly lighter wage growth, and still-rising participation.”

In this environment, employment growth is still considered a good thing so long as inflation-inducing wage growth subsides. But will it?

Private payrolls offer an incomplete picture of the labor market

Private sector employment is only one piece of a much larger labor market puzzle. Economists also look at job vacancies to gauge the health of the labor market.

According to the Labor Department’s JOLTS report, job openings rose by nearly 700,000 in August to 9.6 million—well above estimates of 8.8 million.

Hires rose only modestly, growing by 35,000 to 5.9 million. In other words, job openings far exceed applicants.

“The Fed won’t make policy decisions based on one JOLTS report, but it does keep the risks tilted toward another rate hike,” Nancy Vanden Houten, lead U.S. economist for Oxford Economics, told the New York Times.

Still, others cautioned not to read too much into the JOLTS data.

It’s “very zigzaggy,” according to Julia Pollak, chief economist at ZipRecruiter.

“Because it’s based on such a small sample, there’s quite a lot of statistical noise. So, we shouldn’t read too much into one month either way. The longer-term trend is a gradual return to pre-pandemic levels.”