US private sector employment rose 86,000 in October according to ADP data, exceeding market expectations of 65,000, but the dollar and gold saw little movement. The core reason is the midterm election results and the resulting changes in the congressional landscape, leading to a restructuring of expectations regarding fiscal policy and AI regulation. This caused a surge in gold prices and a sharp drop in the dollar; the election narrative is now the main pricing driver, significantly diluting the influence of this employment data. Note: The new ADP report is no longer used to predict non-farm payrolls. It relies on wage data from 26 million companies and its value lies in understanding the internal structure of employment, not in betting on Friday's non-farm payrolls.

A Closer Look at ADP Data: A Beautiful Headline Hides Structural Cracks

Looking at different company sizes: small businesses added 28,000 jobs, medium-sized businesses 33,000, and large businesses 24,000. Compared to September, hiring by medium-sized businesses has cooled significantly, while small businesses, although still hiring, have seen weak growth and lack resilience. Industry differentiation is very pronounced: job growth is concentrated in offline service industries that are difficult for AI to replace, such as education, healthcare, leisure and hospitality, and transportation; professional business services saw a significant decrease of 27,000 jobs, weakening for three consecutive months; the information industry also contracted, as these white-collar positions are heavily impacted by AI replacement; and the manufacturing sector also weakened slightly. Salaries remain resilient: the year-on-year salary increase for employees who switched jobs is relatively high, indicating that labor cost pressures have not completely subsided. Looking at a longer timeframe, the average number of new private sector jobs in recent years has approached 70,000. The 90,000 in September and 86,000 in October were only temporary rebounds. If the rolling average continues to fall below 70,000 over the next three months, it will mean that the employment center has officially stepped down. Institutional Views: Goldman Sachs points out that the key takeaway from employment data is not the total increase, but the continued contraction of white-collar jobs, which aligns with the trend of companies using AI to reduce junior white-collar and back-office positions; JPMorgan Chase warns that small businesses are more sensitive to changes in interest rates, credit, and policies, and the current weak hiring is a sign of vulnerability.

Post-midterm elections: AI regulation and financing pressures, SMEs are a weak link.

Following the election, the market began pricing in expectations of tighter AI regulations. Increased compliance costs have limited impact on large corporations, which have the funds to invest in AI for cost reduction and efficiency improvement. However, small and medium-sized enterprises (SMEs) face pressure from both ends: on the one hand, large corporations leverage AI to lower costs and seize market share, squeezing their survival space; on the other hand, policy uncertainty coupled with high interest rates reduces banks' willingness to lend, making financing difficult and expensive for SMEs. SMEs account for the majority of employment in the US. If they continue to reduce hiring and cut capital expenditures, it will gradually drag down household income and consumption, posing a risk of GDP decline. Bank of America comments that this round of AI dividends is a "winner-takes-all" situation; it's not a one-time large-scale layoff, but rather a gradual freezing of jobs, with the drag on the economy being a slow and gradual process.

Summary and Trading Implications

In the short term, election trading takes precedence, and the ADP report is unlikely to reverse the trends of the US dollar and gold. Key medium-term indicators to watch include: whether the 3-month moving average of employment will continue to approach the 70,000 threshold, whether small business hiring has weakened further, and wage growth. Even if employment gradually cools, wage resilience will constrain the Federal Reserve, and interest rate cuts will not come quickly. The October ADP report only represents a temporary recovery; structural concerns have not disappeared. The combined effects of AI crowding out, regulatory expectations brought about by the election, credit pressure, and the operations and hiring of small and medium-sized enterprises will be key clues influencing the economy and asset prices going forward.