TL;DR intro
- ADP reported 152,000 jobs added in May:Falling short of the 175,000 estimate and marking the lowest growth since January.
- The services sector led job gains:While goods producers saw minimal increases and several sectors experienced job losses.
- The labor market shows signs of slowing:With pay growth holding steady at 5% annually.
Private job creation slowed significantly in May, according to ADP's latest report. The payroll processing firm announced on Wednesday that companies added 152,000 jobs for the month, a notable decrease from the downwardly revised 188,000 in April. This figure also fell short of the Dow Jones consensus estimate of 175,000 jobs, signaling potential sluggishness in the labor market.
Job Growth Distribution Across Sectors
The bulk of May's job growth came from the services sector, which added 149,000 positions. Key contributors within this sector included trade, transportation, and utilities, which collectively added 55,000 jobs. Education and health services followed closely, adding 46,000 jobs, while the construction sector contributed 32,000 new positions.
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Minimal Growth in Goods-Producing Sectors
In stark contrast, the goods-producing sectors saw minimal growth, contributing just a net 3,000 jobs to the overall total. Manufacturing continued its trend of contraction, losing 20,000 jobs in May. Other sectors experiencing job losses included natural resources and mining (-9,000), information (-7,000), and professional and business services (-6,000).
Sector-Specific Job Trends
- Trade, Transportation, and Utilities: Added 55,000 jobs
- Education and Health Services: Increased by 46,000 jobs
- Construction: Gained 32,000 jobs
- Leisure and Hospitality: Added 12,000 jobs, a modest increase given the sector's past performance
- Manufacturing: Lost 20,000 jobs, continuing a year-and-a-half-long trend of decline
Annual Pay Growth Remains Steady
Despite the slowdown in job creation, annual pay growth held steady at a 5% rate, maintaining this level for the third consecutive month. ADP's chief economist, Nela Richardson, highlighted this trend, stating, βJob gains and pay growth are slowing going into the second half of the year. The labor market is solid, but we're monitoring notable pockets of weakness tied to both producers and consumers."
Comparisons and Projections
The ADP report precedes the more closely watched nonfarm payrolls count from the Bureau of Labor Statistics (BLS), which is due later this week. Historically, ADP's numbers can serve as a preview for the BLS report, though there are often discrepancies. In April, for instance, ADP reported a growth of 188,000 private payrolls, while the BLS reported an increase of 167,000.
Economists are projecting that the BLS report will show nonfarm payrolls expanded by 190,000 in May, up from 175,000 the previous month. However, recent indicators suggest a potential slowdown in hiring, with job openings falling to just over 8 million in April, the lowest level since February 2021.
Implications for the Labor Market and Federal Reserve
The Labor Department's Job Openings and Labor Turnover Survey (JOLTS) recently highlighted a decrease in job openings, signaling a potential weakening in the labor market. Job openings fell to 8.06 million in April, down nearly 300,000 from March and close to 19% lower than a year ago. This reduction in job vacancies could provide the Federal Reserve with more justification to consider lowering interest rates, especially as they monitor labor market slack closely.
Sector-Specific Job Losses
- Manufacturing: Lost 20,000 jobs
- Natural Resources and Mining: Decreased by 9,000 jobs
- Information: Reduced by 7,000 jobs
- Professional and Business Services: Down by 6,000 jobs
- Small Businesses (20-49 workers): Declined by 36,000 jobs
Job Market Trends
While job openings have decreased, hires, separations, and quits have seen slight increases, indicating ongoing worker confidence in their ability to move between positions. This dynamic reflects a labor market that, while showing signs of strain, still holds pockets of resilience and adaptability.
The ADP job report for May highlights a significant slowdown in private payroll growth, with only 152,000 jobs added compared to the higher expectations and previous months. The services sector remains the primary driver of job growth, while goods-producing sectors continue to struggle. As the labor market shows signs of slowing, attention now turns to the upcoming BLS report for further insights. The Federal Reserve will likely consider these developments as it weighs future interest rate decisions, aiming to balance labor market health with inflation targets.
