CNBC’s Steve Liesman and ADP chief economist Nela Richardson join 'Squawk Box' to break down the November private payroll data, which unexpectedly fell by 32,000, led by steep small business job cuts.

U.S. private payrolls unexpectedly declined by 32,000 in November, according to ADP, marking the fourth negative reading in six months. The majority of job losses were concentrated in small businesses, which shed 120,000 jobs, while medium and large firms added jobs. 

Wage growth for both job stayers and changers slowed, and sectors such as manufacturing and professional services experienced declines. Economists noted that small businesses are facing challenges from tariffs, supply chain issues, and higher costs, leading to hiring freezes and attrition rather than layoffs.

November private payrolls unexpectedly fell by 32,000: ADP

We are approaching 8.15 a.m. and that means the November ADP private payroll figure is going to be upon us. That's less than 30 seconds away. Ahead of that, let's check the markets. We've been in the green all morning long, but right now the Dow futures are up near their highs, about 137 points above fair value. S&P futures up by close to 22. The Nasdaq indicated up by about 75. And if you've been watching Treasuries, you will see that the 10-year is sitting at 406, the 2-year is at 349. All right, ADP out with November private payroll data. We're going to get it from Steve Leesman. But we have the person right here. This is like one of those middlemen in health care. Hey, Steve. Hey, Joe. Yeah, a big miss on the ADP payrolls. The private payroll company saying private payrolls shed 32,000 workers in November. That's the fourth negative number in the past six months for this series. Take a look here. The estimate was for 40,000, so the street was off on this one. And how did you get there? Well, goods producing shed 19,000 workers, service producing shedding 13,000 workers. But the big story here, and I'll show you more detail on this, is what's happening with small business, down 120,000. Medium and large business doing OK, up 51,000 and 39,000, respectively. But take a look at this chart here. Virtually all of the job losses have come from small business, which has been negative in six of seven months. Since April, without those losses, ADP numbers would actually be positive. But you can't get rid of or you can't exclude small business. And then you look at it by sector. Well, we've seen those two sectors do it. Education, health services, Legion Hospitality leading the way. But manufacturing down, information down, and professional business services down by 26,000. Also, another sign of weakness in the job market, job stayers, their wages up 4.4. That's down a tenth from the prior month. And job changers, that was a big number, or had been, that's down four tenths of a point to 6.3%. So Joe, at least according to ADP, additional weakness in the job market and small business getting hammered. And there is some information that some of this may be coming from being hammered by the tariffs. Yeah, trying to figure out. I'm watching, you know, all the markets. I saw Bitcoin above 93. No, they didn't. But this, I don't think people know whether, if we already had a cut in the cards, then we don't need any weak data. You know, we don't really want any. But we might need it for the next, you know, the next ones are less sure now. So maybe it would help with those. Or maybe it's just downright bad and not great when we lose jobs. So I don't think people know what to do. Let's see what Nila thinks. Joining us now, Nila Richardson, ADP chief economist. And you're not here to tell us what the stock market should do based on these numbers. You can just tell us that things have worsened in the last month. Yeah, this is a small firm story. This is even more than a small firm story, Joe. This is a mom and pop story. Because if you look at where the losses came in, it was for firms with headcount under 50. And you take that and you extrapolate it to the industries. Those are the same industries, construction, for example, where there are a lot of small firms. And so when you think about what small firms are dealing with, if you put your mind into the into the space of a small firm owner, they're not going to raise their hand and say, we're cutting by 10%. They're just not going to replace that retired worker. They are just going to let attrition take care of this issue for them. They are going to have a hiring freeze. They may not hire a teenager or two in the bakery over the holiday season. They're going to make these small changes that add up to a lot because 44% of U.S. workers work in these mom and pop establishments. What's ailing them? What is ailing them? What's the problem? Tariffs? You know, you used to be able to look at your consumer demand and your traffic and make the story. But if you're a small firm owner today, you have to think about your supplier. You have to think about the Supreme Court decision that will kind of pave the way for tariffs. You're going to have to think about all of these things instead of just your own foot traffic. And so what that means is that you may delay your decision making when it comes to hiring. You don't want to pass along those price increases to the consumer. And there's no evidence that we're seeing small firms do that in lockstep. What they're doing is they're absorbing it, they're taking a profit hit, and they may be delaying or curtailing hiring. So how can bigger companies, they just have lawyers or something? How does it work? They have more options. They can change suppliers. The fixed costs for small firms are variable costs for large firms. They can invest broadly. They can be price dictators when it comes to their suppliers. And you have to also understand where we are in terms of the inflation story. It's not just inflation growth. It is the cumulative effect of 24 percent increases in price levels in the last five years. So even modest inflation from here is on top of really high price increases over the last several years. The affordability crisis wasn't helped by the 3 percent inflation that we've got over the last year. But the 21 and a half percent prior to that accounts for a lot of it. And this is just like layering on another three. Economists are happy with smaller inflation and lower inflation. Right. But the price levels are still there. 25 percent. Right. That's right. And so you add in all the effects and you think about what a small firm can change. They can change their hiring patterns. And that's what we're seeing right now. Is this the beginning of a series of numbers like this or is it a troughing of numbers like this. You know if we knew that then then I could be in those prediction markets that you were talking about earlier. We don't know that. And I think it will depend on the consumer consumer. Remember that overall GDP growth at least in terms of our last read of the second quarter GDP was strong and it was strengthened by that resilient high income consumer. If that resilient high income consumer is enough to pull the water for the rest of us for the low income households for the middle income households you may see a resurgence in small firm hiring demand. And so it really now is a more concentrated economic path forward that is dependent on a investment and a well-heeled consumer. I was going to ask you if you had anything Steve. But I don't know. They're playing this music again. Any just final thoughts. Not final thoughts but any thoughts. Only Joe that you're asking. You're asking the right question which is what's ailing small business. It's an engine of growth in the U.S. economy. We've got to start thinking about it. Obviously there would be more affected by higher interest rates than big business which can go into capital markets where spreads are very tight. So there's an issue there that has to do with the Federal Reserve. But also I think Neela makes an important point which I've been talking a lot about which is the ability of small business versus large business to adapt to these tariffs. You know Jim talked to his wife Louise and says find out what the tariffs are in Indonesia. And I think it's harder for Louise to do that than it is for say a large company that has a department that does that.

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