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Employers is added 278,000 Employment in May, Blowing away the previous Assessments

June 5, 2023: According to a payroll operation company ADP report, the U.S. labor market posted another month of surprising strength in May as companies added jobs well above expectations.

Private sector employment increased by a seasonally adjusted 278,000 for the month, ahead of the Dow Jones estimate for 180,000 and a bit lower than the downwardly revised 291,000 in April. May’s increase took the payroll growth in 2023 to 1.09 million.

The ADP report noted that the distribution of job gains was “fragmented” for the month, as increases were focussed on leisure and hospitality, which added 208,000 positions, and natural resources and mining, which saw a gain of 94,000.

Construction added 64,000 jobs, but multiple other categories declined.

For instance, manufacturing saw a drop of 48,000, financial activities lost 35,000, and education and health services were off by 29,000. Trade, transportation, and utilities posted an increase of 32,000, while the other services category added 12,000.

From a size perspective, companies with 500 or more workers lost 106,000 jobs. Small firms with fewer than 50 workers added 235,000 positions.

One area of note for ADP was a slowdown in wage gains, with annual pay up a still-robust 6.5% in May but down from the 6.7% increase in April. Those switching jobs reported a yearly increase of 12.1%, a percentage point from the month before.

“This is the second month we’ve seen a full percentage point decline in pay growth for job changers,” said Nela Richardson, ADP’s chief economist. “Pay growth is slowing substantially, and wage-driven inflation may be below the crisis for the economy despite robust hiring.”

The ADP count comes a day ahead of the Labor Department’s more closely watched nonfarm payrolls report, which is anticipated to show job growth of 190,000 in May following a gain of 253,000 in April.

ADP’s report is a precursor to the government’s tally, though the two can sometimes differ considerably. The Labor Department said private payrolls rose by 230,000 in April.

The payroll gains have come despite the Federal Reserve’s efforts to tackle inflation and slow the labor market through interest rate increases. Central bank officials have recently said they may favor skipping another hike in June as they weigh the impact of policy tightening that began in March 2022.

On Thursday, a separate report showed that initial filings for unemployment benefits were the same as in the previous week.

Jobless claims totaled 232,000 for the week ended May 27, up 2,000 from the previous week and slightly below the Dow Jones estimate for 235,000. Continuing shares edged higher as well to 1.795 million.

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