Demonstrating remarkable resilience, the U.S. labor market exceeded Dow Jones’ forecasted estimate by adding 278,000 jobs in May, according to the latest report from ADP, a payroll processing firm. Although this growth was slightly less than April’s revised 291,000, it brought the total number of jobs added in 2023 to 1.09 million.
However, the job gains in May were not evenly distributed across all sectors. The leisure and hospitality sector saw significant growth, contributing 208,000 jobs, while the natural resources and mining sector added 94,000 positions. The construction industry also saw an increase, creating 64,000 new jobs. Conversely, the manufacturing sector lost 48,000 jobs, financial activities decreased by 35,000, and the education and health services sector experienced a decline of 29,000.
Small businesses were the primary contributors to job growth, adding 235,000 jobs. Medium-sized businesses also played a part, contributing an additional 140,000. However, large businesses saw a decrease of 106,000 jobs. Despite this, the overall increase in private payrolls suggests a potential beat in the non-farm payrolls data, due for release on Friday.
The leisure and hospitality sector experienced the most significant increase, adding 208,000 jobs. However, this sector is still 400,000 jobs short of its pre-pandemic levels, indicating room for further growth. The construction sector also saw an increase, adding 64,000 jobs. On the other hand, the education and health services sector, which had previously been a source of strength, saw a decrease of 29,000 jobs.
The financial activities and manufacturing sectors also experienced declines, aligning with recent layoffs and a decrease in the ISM Manufacturing Index. Despite these decreases, wages have been on the rise. The average increase for a person staying in their job was 6.5%, although this is one of the lowest increases we’ve seen in a while.
Job changers saw a wage increase of 12%, a decrease from the previous month. High-frequency data from UKG indicates job strength across every sector, with no pockets of weakness throughout the month.
The Federal Reserve has been closely monitoring these developments, with a 33% chance of a rate hike now predicted. This is a decrease from the 70% chance predicted before Fed officials began discussing a potential pause. This fluctuation in predictions has caused some confusion and uncertainty in the market.
In conclusion, the significant increase in private payrolls in May is a positive sign for the economy. However, the decrease in some sectors and the uncertainty surrounding the potential rate hike by the Federal Reserve indicate that there are still challenges ahead. As always, it’s crucial for businesses and investors to stay informed and prepared for any changes in the economic landscape.
Large corporations, those with 500 or more employees, saw a loss of 106,000 jobs. In contrast, small companies with less than 50 workers added a significant 235,000 positions.
Despite the robust hiring, the report noted a deceleration in wage growth. Annual pay rose by a healthy 6.5% in May, down from April’s 6.7%. For those changing jobs, the annual increase was reported to be 12.1%, down by one percentage point from the previous month. “Pay growth is slowing substantially, and wage-driven inflation may be less of a concern for the economy despite robust hiring,” noted ADP’s chief economist, Nela Richardson.
The ADP report precedes the Labor Department’s nonfarm payrolls report, which is more closely watched. This report is expected to show a growth of 190,000 jobs in May, following April’s 253,000 gain. Thetwo reports can sometimes diverge significantly. The Labor Department’s report showed that private payrolls grew by 230,000 in April.
Interestingly, the payroll growth is occurring amidst the Federal Reserve’s efforts to curb inflation and slow the job market through interest rate hikes. However, recent statements from central bank officials suggest they might forgo another hike in June, considering the impacts of the policy tightening initiated in March 2022.
