(NewsNation) —  Private employers unexpectedly shed 32,000 jobs in November, with small businesses leading the pullback.

It was the biggest drop in private payrolls since early 2023 and the fourth contraction in six months, according to payroll processor ADP. Economists had expected gains: The Wall Street Journal’s survey of analysts predicted a 40,000 increase, while Bloomberg’s forecasted a 10,000 rise.

Small businesses were the weak spot. Companies with less than 50 employees shed 120,000 jobs last month, the largest decline since May 2020 — offsetting gains at mid-sized (+51,000) and large companies (+39,000).

“Small businesses are in the midst of a recession akin to the depths of the COVID-19 pandemic,” Bob McNab, chair of the economics department at Old Dominion University, said in a social media post.

The steepest losses came from professional and business services (-26,000), information (-20,000) and manufacturing (-18,000), while education and health services (+33,000) continued to add jobs.

“Hiring has been choppy of late as employers weather cautious consumers and an uncertain
macroeconomic environment,” Nela Richardson, chief economist at ADP, said in a release.

ADP’s private sector report has taken on greater importance in recent months because the prolonged government shutdown created a vacuum of official data. The Labor Department will not release a full October jobs report, and November’s data is scheduled to arrive more than ten days late.

The most recent federal data, from September, showed a surprising 119,000 job gain, but the unemployment rate ticked up to 4.4%, its highest level since October 2021.

Still, economists and policymakers are eager to see how the job market has shifted over the past two months. Because ADP’s report only captures private payrolls, the shutdown’s impact on public-sector employment remains a blind spot.

The Federal Reserve’s upcoming meeting is shaping up to be a divisive one, with officials likely to be split over what to do about interest rates. Some see stubborn inflation as the main risk — a view that argues against another rate cut. Others are more focused on signs of labor market softening, which would bolster the case for easing.

“It will be difficult to argue that the labor market shows sufficient signs of stability to justify a pause in December,” Matthew Martin, senior U.S. economist at Oxford Economics, said in a statement Wednesday.

Markets now see an 89% chance the Fed cuts rates by a quarter-point at the upcoming meeting, according to the CME FedWatch Tool — a turnaround from just a few weeks ago when a hold was seen as more likely.

One bright spot in ADP’s report: October’s job gain was revised up from 42,000 to 47,000.