ADP Report: U.S. Job Growth Slows Sharply to 37K in May as Labor Market Cools

Job Creation Weakens: Is Labor Market Cooling Off?

U.S. private employers added just 37,000 jobs in May, marking the weakest monthly gain since March 2023, according to the latest ADP National Employment Report. This slowdown adds to growing evidence that the labor market may be losing steam after a strong start to the year. The deceleration in job growth could influence expectations for Federal Reserve policy, especially with inflation still sticky.

Sector Breakdown: Leisure and Finance Strong, Professional Services Lag

The service-providing sector contributed 36,000 new positions, with leisure and hospitality adding a robust 38,000 jobs. Financial activities also saw solid hiring, gaining 20,000 jobs. However, these gains were offset by notable losses in professional and business services (-17,000) and education and health services (-13,000). In the goods-producing sector, construction was a rare bright spot, adding 6,000 jobs, while manufacturing and mining saw declines.

Regional Divergence: West Rebounds, Northeast Contracts

Geographic trends showed uneven performance. The West added 37,000 jobs, driven by a sharp 35,000-job increase in the Mountain region. The Midwest posted a modest gain of 20,000, while the South lost 5,000 positions. The Northeast saw the most significant contraction, shedding 19,000 jobs, primarily from a 16,000-job loss in New England.

Wage Growth Steady: Pay for Job-Changers Remains Elevated

Despite weaker hiring, wage growth remained stable. Pay for job-stayers rose 4.5% year-over-year, while job-changers saw a stronger 7% increase. The financial activities sector led with a 5.2% median pay increase for job-stayers. Pay growth was notably weaker in small firms (2.6% for those with under 20 employees), while medium and large firms posted stronger wage gains, closer to 4.8%.

Firm Size Matters: Mid-Sized Businesses Drive Hiring

Mid-sized companies (50–249 employees) led employment gains with 51,000 new jobs, while small businesses cut 13,000 positions and large firms trimmed payrolls by 3,000. The strong showing by mid-sized firms suggests some resilience in the middle market, even as hiring pressure intensifies in other areas.

Market Outlook: Bearish Bias on Labor Strength

The sharp drop in job creation and regional softness point to a weakening labor market. While steady wage growth offers some support to consumer demand, the overall tone of the report is bearish from a labor strength perspective. Traders should monitor upcoming Fed commentary closely, as softening employment may alter rate expectations heading into the summer.

More Information in our Economic Calendar.