May ADP payrolls:In a surprising development, the May ADP payrolls report revealed that the U.S. labor market added only 37,000 private sector jobs, marking the lowest monthly gain since March 2023. This figure came in far below the consensus estimate of 110,000, raising concerns about the pace of hiring as economic uncertainty weighs on businesses.
May ADP payrolls report
In a surprising development, the May ADP payrolls report revealed that the U.S. labor market added only 37,000 private sector jobs, marking the lowest monthly gain since March 2023. This figure came in far below the consensus estimate of 110,000, raising concerns about the pace of hiring as economic uncertainty weighs on businesses.
Total private payrolls were up by 37,000. The goods-producing sector saw a decline of 2,000 jobs, while services added 36,000. Nonfarm payrolls are estimated to have increased by around 125,000, though the actual Bureau of Labor Statistics (BLS) report is yet to be released.
ADP Chief Economist Nela Richardson explained that the lower job gains are mainly due to job losses in the goods sector. Manufacturing, which had shown some unexpected strength earlier in the year, reversed course and shed jobs in May. Furthermore, job losses extended into parts of the services sector, including professional business services and health care — both of which had shown strong hiring momentum in earlier BLS reports.
Another key point of concern highlighted by Richardson was the significant job loss among the smallest firms. Businesses with fewer than 250 employees — which collectively employ about 70% of the U.S. workforce — accounted for the bulk of the job cuts in May. These small firms are often less equipped to navigate economic policy shifts, as they lack the financial flexibility and lobbying power of larger corporations. Unlike big companies, small firms typically rely on bank loans or personal funding sources and are more sensitive to rising costs and market changes.
However, the overall labor market is not in freefall. Richardson clarified that this is not a collapsing job market, but rather one experiencing hesitancy in hiring. The slowdown reflects caution, not incapacity. Firms are still looking to hire, but uncertainty is causing delays in employment decisions.
On a more positive note, the leisure and hospitality sector added 38,000 jobs in May, showing strong consumer demand for entertainment and travel. This aligns with recent JOLTS data, which showed increased job openings in entertainment-related industries.
One area that remains strong is wage growth. According to ADP, workers who changed jobs in the past three months saw average pay increases of about 7%. This steady wage growth supports consumer spending and suggests that, despite lower hiring, employers are still willing to pay more for talent.
Market reaction was noticeable. Treasury yields dipped across the board following the ADP release. The five-year yield dropped to 3.99%, the two-year to 3.92%, and the 30-year fell to 4.95% from an earlier 4.99%. Equities futures also softened slightly as investors weighed the implications for Federal Reserve policy.
Analysts, including Fed watchers like Nick Timiraos, suggested that while one weak report won’t prompt an immediate rate cut, a trend of softening labor data — especially if unemployment ticks up — could nudge the Fed toward easing monetary policy.
The conversation turned political as well, President Trump posted a statement urging the Fed Chair Jerome Powell to “cut rates now before it’s too late,” just minutes after the ADP report went public. Though it’s unclear whether the post was directly tied to the ADP data, the timing raised eyebrows.
Richardson concluded that the labor market is showing signs of softness, but the stability in wages indicates that employers are still getting good productivity out of their workers. Layoffs do not appear to be on the horizon in a broad sense.
Disclaimer:
This blog is for informational purposes only and does not constitute financial or investment advice. Market data and employment figures are subject to revision. Please consult professional sources before making any financial decisions.