NEW YORK (Reuters) - U.S. private payrolls unexpectedly fell in September, suggesting a weakening in labor market conditions.

Private employment fell by 32,000 jobs last month after a downwardly revised 3,000 decrease in August, the ADP National Employment Report showed on Thursday. Economists polled by Reuters had forecast private employment increasing 50,000 following a previously reported 54,000 advance in August.

In the absence of data from government agencies due to the current shutdown, investors may have to put a greater reliance on alternative data sources such as ADP. 

MARKET REACTION:

STOCKS: S&P E-minis briefly extended declines and were last down 28.25 points, or 0.42%. 

BONDS: Treasury yields fell, with the yield on the benchmark U.S. 10-year note down 4.2 basis points to 4.108% and the two-year note yield off 5.9 basis points to 3.545%. 

FOREX: The dollar index weakened further and was last down 0.28% to 97.56.

COMMENTS:

OLIVER PURSCHE, SENIOR VICE PRESIDENT, ADVISOR, WEALTHSPIRE ADVISORS, WESTPORT, CONNECTICUT:

""With the ADP number, we continue to see signs of a weakening labor market. We continue to see signs of a consumer pulling back slightly. So, if you're an investor, you have to pay attention to that, knowing that it's not a trend until it is a trend - it's too early, but certainly there are red flags out there. If you dig into the data, it has still been mostly a lack of hiring by large companies who seem to be benefitting from AI-related productivity increases, whereas small- and mid-sized businesses are still hiring at a reasonably good pace."

MATTHEW MISKIN, CO-CHIEF INVESTMENT STRATEGIST, MANULIFE JOHN HANCOCK INVESTMENTS, BOSTON:

"This is another data point amid a laundry list of weak labor market data."

"However you want to look at it... it's a weakening labor market and the Fed is likely to continue on their cutting path through year end in our view. Not having other data points does make this harder for the Fed."

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:

"This was a crucial report because the government is probably not going to be reporting this Friday. So, the markets are going to look at this very carefully.

"So, the private sector lost 32,000 jobs last month. That's rather significant and this is a good indication that the labor market is continuing to weaken. And when we do get the first glimpse of the government report, we'll probably see a negative figure such as this, and that obviously confirms that the job market is weakening.

"Ordinarily the market shrugs ADP numbers, but they have been pretty much consistent in showing trends.

"I don't expect (the shutdown) to be long-lasting. But if the shutdown lasts a few weeks, let's say two or three weeks - which I don't think will happen - but if it should, that puts the Federal Reserve in a big bind. And if these numbers are accurate, the Fed is likely to become more aggressive.

"But the market is likely to continue in a bullish trend in the fourth quarter and that's due to third quarter earnings that will be coming out in the next ten or twelve days. It's probably going to be another positive session, another positive season. So I think the market will continue climbing on that."

WILL COMPERNOLLE, MACRO STRATEGIST, FHN FINANCIAL, CHICAGO:

"They (ADP) revised their methodology sometime during the pandemic, and even before that I didn't find it was a very reliable predictor. But now, because the revisions to the BLS data have been quite significant, it could be that people are finding the ADP data to be just as good as the initial BLS prints."

"I think the BLS has a much bigger universe that they cover than ADP and so it's authoritative in that way. But also it's authoritative because it's what the Fed is going to consider the most reliable. And so, if there are conflicting signals between ADP and BLS, BLS takes the cake. Even though they know that it's susceptible to revisions, that's what they're going to work off of."

(Compiled by the Global Finance & Markets Breaking News team)