Private-sector payrolls in America rose by 27K last month, according to a new ADP report. That was the smallest increase since March 2010 and significantly worse than the 175K gain analysts expected. The April print was also revised slightly lower, which resulted in a 3-month average pace of private-sector job creation of just 152K. That was a 19-month low but still more than enough to keep up with U.S. population growth. Small business hiring was particularly weak in May, as firms with 1-49 employees actually reported a net reduction in employment of 52K payrolls, the largest decline in nine years.
Job creation at smaller firms was already losing momentum as these businesses struggled to compete for talent with larger corporations in the tightening labor market, but the rapid deterioration in May suggests that additional headwinds have begun to show up. For example, almost all of the job losses last month occurred in the goods-producing sector, including a sharp drop in construction payrolls. This is likely a reflection of the recent weakness in residential investment as well as some potential fallout from the ongoing trade war. Altogether this was a very disappointing report, but one bad data point does not make a trend, and most other labor market indicators remain at historically strong levels. Moreover, we would probably need to see a confirmation of this sudden slowdown in the more important nonfarm payrolls report from the U.S. Labor Department released this Friday for monetary policymakers to even take notice.
Sources: Econoday, ADP, U.S. DoL, FRBSL
Post author: Charles Couch