ADP reports that private sector jobs skyrocketed as companies created more jobs than projected.
In May, private sector jobs increased by about 267,000, with June projected to add 220,000 according to Dow Jones consensus estimate.
This increase of nearly half a million jobs is the largest monthly increase since July 2022.
Sarah House, senior economist at Wells Fargo, said she’s expecting a “gradual cooling” to wash over the labor market.
“The jobs market is not collapsing,” she said. “But as we get further away from the [pandemic] reopening, the impact of tighter monetary policy increasingly bites. We do look for the job gains to continue to ease on trend.”
“Consumer-facing service industries had a strong June, aligning to push job creation higher than expected,” said Nela Richardson, chief economist at ADP. “But wage growth continues to ebb in these same industries, and hiring likely is cresting after a late-cycle surge.”
Other industries also saw an increase in jobs. Leisure and hospitality led with 232,000 new hires, followed by construction with 97,000, and trade, transportation and utilities at 90,000.
Education and health services increased by 74,000, natural resources and mining with 69,000, and the “other services” classification sits at 28,000.
Manufacturing lost 42,000 jobs, while information was off 30,000 and financial activities saw a decline of 16,000.
“The drop in cuts is not unusual for the summer months; in fact, June is historically the slowest month on average for announcements,” Andy Challenger, senior vice president of Challenger, Gray & Christmas, said in a statement. “It is also possible that the deep job losses predicted due to inflation and interest rates will not come to pass, particularly as the Fed holds rates.”
Broadly speaking, service providers contributed 373,000 of the total, while goods producers added 124,000.
Companies with fewer than 50 employees were responsible for most of the job growth, adding 299,000 positions. Firms with more than 500 workers lost 8,000 jobs, while mid-size companies contributed 183,000.
Annual pay increased by 6.4%, a direct result of recent uptick in interest rates in the United States according to the Federal Reserve.
Unemployment rates increased from 3.4% to 3.7%, which caught economists off-guard considering the large increase in jobs.
“It likely ticked higher in June to 3.9% with the entry of recent college graduates to the jobs market and slowing reemployment among workers who were recently laid off,” Aaron Terrazas, Glassdoor’s chief economist, said in commentary issued last week. “If this occurs, the unemployment rate will have increased 0.5 percentage points in two months — an important benchmark for many economists.”
Recent job market data shows that more businesses are “labor hoarding” by maintaining headcounts in spite of softening demand.
“We do think that businesses will be a little bit more reluctant to let workers go,” said Sarah House, senior economist at Wells Fargo.
“The intention might be to keep workers on, come what may, but when push comes to shove, their finances might dictate otherwise,” she added.