ADP Reports that Private Payrolls Increased by 278,000 in May, much Exceeding Expectations

ADP Reports that Private Payrolls Increased by 278,000 in May, much Exceeding Expectations

According to a report released on Thursday (June 1, 2023) by payroll processing company ADP, the U.S. labor market showed another month of surprisingly strong growth in May as businesses added jobs at a rate much beyond forecasts.

Seasonally adjusted employment growth in the private sector was 278,000 for the month, exceeding the Dow Jones estimate of 180,000 but somewhat under the downwardly revised 291,000 in April. May’s increase took the payroll growth so far in 2023 to 1.09 million.

The ADP report noted that the distribution of job gains was “fragmented” for the month, as increases were concentrated in leisure and hospitality, which added 208,000 positions, and natural resources and mining, which saw a gain of 94,000.

Construction added 64,000 jobs, but multiple other categories had declines.

For instance, manufacturing saw a drop of 48,000, financial activities lost 35,000, and education and health services was off by 29,000. Trade, transportation and utilities posted an increase of 32,000 while the other services category added 12,000.

From a size perspective, companies with 500 or more workers lost 106,000 jobs. Small firms, with fewer than 50 workers, added 235,000 positions.

ADP noted a slowing in wage growth, with annual pay at a still-solid 6.5% in May but less than the 6.7% increase in April. Those changing occupations reported an annual increase of 12.1%, down 1% from the previous month.

“This is the second month we’ve seen a full percentage point decline in pay growth for job changers,” Nela Richardson, ADP’s chief economist said. “Pay growth is slowing substantially, and wage-driven inflation may be less of a concern for the economy despite robust hiring.”

The ADP count comes a day ahead of the Labor Department’s more closely watched nonfarm payrolls report, which is expected to show job growth of 190,000 in May following a gain of 253,000 in April.

ADP’s report serves as a precursor to the government’s tally, though the two sometimes can differ considerably. The Labor Department said private payrolls rose by 230,000 in April.

The payroll gains have come despite the Federal Reserve’s efforts to tackle inflation and slow the labor market through a series of interest rate increases. As they consider the effects of the policy tightening that started in March 2022, central bank officials have recently indicated that they might be in favor of foregoing another hike in June.

A separate report Thursday showed that initial filings for unemployment benefits were little changed last week.

Jobless claims totaled 232,000 for the week ended May 27, up 2,000 from the previous week and slightly below the Dow Jones estimate for 235,000. Continuing claims edged higher as well to 1.795 million.