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US private sector jobs more than double estimates

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2023-07-07

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In a promising sign for the U.S. labour market, private sector companies added a robust 497,000 jobs in June, according to a report released by payroll processing firm ADP on Thursday. The figure far exceeded market expectations and represented a substantial increase from the downwardly revised 267,000 jobs created in May. Economists had predicted a gain of around 220,000 jobs for June.

"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."

Among the sectors driving the surge in employment, leisure and hospitality led the way with 232,000 new hires, followed by construction with 97,000 jobs, and trade, transportation, and utilities with 90,000 positions. The unexpectedly strong payroll growth comes despite a series of Federal Reserve interest rate increases over the past year, which were aimed at cooling down the job market.

The positive report from ADP comes a day ahead of the highly anticipated nonfarm payrolls report by the Department of Labor, which is expected to show an increase of 240,000 jobs in June, following a gain of 339,000 jobs in May. While there can be variations between the two reports, the ADP numbers suggest upside potential for Friday's report.

"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."

In terms of specific industries, education and health services saw solid gains with 74,000 new jobs, followed by natural resources and mining with 69,000 jobs, and the "other services" category with 28,000 positions. However, manufacturing experienced a loss of 42,000 jobs, while information and financial activities declined by 30,000 and 16,000 jobs, respectively.

The ADP data also revealed that service providers accounted for 373,000 of the total job gains, while goods producers contributed 124,000 jobs. Most of the job growth came from companies with fewer than 50 employees, which added 299,000 positions. Larger firms with more than 500 workers lost 8,000 jobs, while mid-sized companies contributed 183,000 jobs.

The strong employment figures signal a resilient labour market, indicating potential improvements in the overall economic recovery. However, the report also underscores concerns about brewing inflationary pressures, as annual pay rose at a rate of 6.4%.

"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."

Investors will be closely watching Friday's nonfarm payrolls report, which will provide further insights into the state of the U.S. job market and its implications for the broader economy.

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