Private sector job growth cools in May to 152,000, worse than expected: ADP

Job growth comes in weaker than expected with some sectors shedding workers

Hiring by U.S. companies slowed more than expected in May, pointing to a labor market that is continuing to cool in the face of higher interest rates, according to the ADP National Employment Report released Wednesday morning.

Companies added 152,000 jobs last month, below both the 175,000 increase predicted by LSEG economists and the downwardly revised April gain of 188,000. It marked the worst month for job creation since January.

At the same time, the report showed that wage growth — a key driver of inflation — held steady at 5%, where it has been for three straight months. For workers who changed jobs, wages climbed 7.8%, a steep drop from the 9.3% boost recorded in April.

JOB OPENINGS UNEXPECTEDLY FALL IN APRIL TO LOWEST LEVEL IN 3 YEARS

Employers at a job fair in California

Job growth was almost entirely concentrated in the services sector, with goods producers contributing just 3,000 jobs to the total. (Paul Bersebach/MediaNews Group/Orange County Register via / Getty Images)

"Job gains and pay growth are slowing going into the second half of the year," said Nela Richardson, ADP chief economist. "The labor market is solid, but we're monitoring notable pockets of weakness tied to both producers and consumers." 

Job growth was almost entirely concentrated in the services sector, with goods producers contributing just 3,000 jobs to the total.

Trade, transportation and utilities led the way with 55,000 new jobs, followed by education and health services with 46,000 and construction with 32,000. Leisure and hospitality, once a leading source of job creation, saw payrolls rise by just 12,000 last month. 

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THE NUMBER OF HIGH-PAYING JOBS IS DWINDLING

There were also sectors that saw steep declines last month. Manufacturing shed 20,000 jobs, while natural resources and mining lost 9,000.

The weaker-than-expected report comes in the wake of an aggressive tightening campaign by the Federal Reserve, which has raised interest rates to the highest level since 2001. Wall Street is watching the labor market closely for signs that it is finally cooling, so the Fed can pivot to cutting interest rates.

A construction worker hammers a beam

A construction worker hammers a beam while renovating a road in the Union Market district in Washington, D.C., on Sept. 8, 2023. (Al Drago/Bloomberg via / Getty Images)

Central bank officials have indicated that rate cuts will begin later this year, but cautioned they need to see more evidence that inflation is returning to their 2% target.

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The data precedes the release of the more closely watched May jobs report from the Labor Department on Friday morning, which is expected to show that employers hired 185,000 workers, following a gain of 175,000 in April. The unemployment rate is expected to hold steady at 3.9%.

ADP numbers can differ drastically from the official government count and have historically been an unreliable indicator of what's to come.