ADP Report Reveals Strong Job Growth, Mixed Sector Performance in May
- U.S. labor market exceeds job growth expectations in May.
- Leisure and hospitality sector leads job gains, while manufacturing and finance sectors decline.
- Wage growth slows down, but hiring remains robust.
U.S. Labor Market Exceeds Expectations
According to a report released on Thursday by payroll processing firm ADP, the U.S. labor market once again showed surprising strength in May, with companies adding jobs at a pace that exceeded expectations. Private sector employment saw a seasonally adjusted increase of 278,000 jobs during the month, surpassing the estimated 180,000 and slightly lower than the revised figure of 291,000 in April. The growth in May brought the total number of jobs added in 2023 to 1.09 million.
Initial Claims Reach 232,000, Slightly Higher than Expected
For the week ending May 27, seasonally adjusted initial claims increased by 2,000 to reach 232,000. The previous week’s level was revised up by 1,000 to 230,000. The 4-week moving average decreased by 2,500 to 229,500, with the previous week’s average revised up by 250 to 232,000. Traders were looking for a 236,000 reading.
Hospitality and Construction Thrive, Manufacturing Declines
Job gains in May showed an uneven distribution across sectors. The leisure and hospitality sector added 208,000 positions, while the natural resources and mining sector saw a gain of 94,000 jobs. The construction industry contributed 64,000 new jobs. However, manufacturing experienced a decline of 48,000 jobs, financial activities lost 35,000 jobs, and education and health services were down by 29,000 jobs. On the positive side, trade, transportation, and utilities saw an increase of 32,000 jobs, and the other services category added 12,000 jobs.
Large Companies Shed Jobs, Small Firms Add Positions in May
In terms of company size, larger companies with 500 or more workers experienced a loss of 106,000 jobs, while small firms with fewer than 50 workers added 235,000 positions.
Wage Growth Slows in May: 6.5% Increase, Down from April’s 6.7%
One notable aspect of the ADP report was a slowdown in wage growth. Although wages still increased by a strong 6.5% annually in May, it was a decrease from the 6.7% growth seen in April. Job switchers reported an annual wage increase of 12.1%, down one percentage point from the previous month. ADP’s chief economist, Nela Richardson, commented on the declining wage growth and suggested that wage-driven inflation might be less of a concern for the economy, despite robust hiring.
Strong Job Growth Ahead of Nonfarm Payrolls
The ADP report precedes highly anticipated nonfarm payrolls, due on Friday. The upcoming report is expected to show job growth of 190,000 in May, following an increase of 253,000 in April.
It is noteworthy that the ADP and Labor Department reports can sometimes diverge significantly. In April, the Labor Department reported a rise of 230,000 private payrolls, contrasting with ADP’s figures.
The labor market’s positive performance in terms of job gains has occurred despite the Federal Reserve’s efforts to address inflation and slow down the labor market by implementing a series of interest rate hikes. However, recent statements from central bank officials suggest a potential pause in rate hikes for June as they evaluate the impact of tightening policies that began in March 2022.
More to Follow….