ADP: U.S. Private Sector Job Growth Slows More Than Expected In May

by Ike Obudulu Posted on June 5th, 2019

Private sector employment in the U.S. crept up by much less than expected in the month of May, according to a report released by payroll processor ADP on Wednesday.

ADP said private sector employment edged up by 27,000 jobs in May after spiking by a downwardly revised 271,000 jobs in April.

Economists had expected employment to increase by 180,000 jobs compared to the jump of 275,000 jobs originally reported for the previous month.

“Following an overly strong April, May marked the smallest gain since the expansion began,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute.

The much weaker than expected job growth came as the addition of 71,000 service-providing jobs was partly offset by the loss of 43,000 goods-producing jobs, including a drop of 36,000 construction jobs.

The report also showed employment at large businesses climbed by 68,000 jobs and mid-sized businesses added 11,000 jobs, but employment at small businesses slumped by 52,000 jobs.

“Job growth is moderating,” said Mark Zandi, chief economist of Moody’s Analytics. “Labor shortages are impeding job growth, particularly at small companies, and layoffs at brick-and-mortar retailers are hurting.”

On Friday, the Labor Department is scheduled to release its more closely watched monthly jobs report, which includes both public and private sector jobs.

Employment is expected to climb by 185,000 jobs in May after surging up by 263,000 jobs in April, while the unemployment rate is expected to hold at 3.6 percent.

ADP and NFP

The ADP payroll report is the precursor to the Labor Department’s Employment Situation Report, colloquially known as Non-Farm Payrolls or just NFP which will be issued this Friday at 8:30 am EDT, 12:30 GMT.

This report provides a detailed analysis of the US labor market beginning with statistics on total US payrolls and additions. It separates the jobs numbers into myriad categories–private and government payrolls, type of employment, age, racial and gender differentiated unemployment rates and many others. The Bureau of Economic Analysis (BEA), a division of the Labor Department, tracks average hourly earnings monthly and annually, average work week (hours) and the labor force participation rate. The report gives the most comprehensive picture of the US labor market and is the best known and most widely traded US economic statistic.

There is a directional correlation between the private ADP figures and the overall US employment numbers. The two numbers generally move in the same direction each month though the amount of the rise or fall is not well correlated.

The February report was a good example. Non-farm payrolls dropped from 311,000 in January to 20,000 in February and ADP fell from 300,000 to 183,000.

ADP and NFP: Difference in degree

The report from ADP, released two days before the BEA statistics each month is a useful guide to the Labor Department numbers for the overall economy.

The main difference between the two reports is that ADP records just the hiring of its own clients, 411,000 US firms employing nearly 24 million workers. The BEA covers the entire US economy.

The BEA receives reports on actual hiring each month by firms of all sizes nationwide. It also estimates the number of jobs created by newly formed small businesses which are the largest source of employment growth. These positions have not yet been reported to the government. The government periodically adjusts the estimated number of positons by the actual figures resulting in annual revisions to the payroll numbers.

The BEA also includes government hiring and firing at the local, state and Federal level.

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