The U.S. private sector implemented a hiring freeze last month, as payrolls rose at the lowest level in more than two years.
Payroll processor ADP reported that private employers rose by 37,000 in May, marking the smallest increase since March 2023. This is down from the downwardly adjusted 60,000 in April.
Last month’s reading came in below the consensus forecast of 110,000.
The goods-producing industry lost 2,000 jobs, primarily in natural resources and mining (negative 5,000) and manufacturing (negative 3,000). The service-providing sector accounted for last month’s gains, driven by hiring in financial activities (20,000) and information (8,000).
“After a strong start to the year, hiring is losing momentum,” Nela Richardson, the chief economist for ADP, said in the report.
“Pay growth, however, was little changed in May, holding at robust levels for both job-stayers and job-changers.”
The median change in annual pay for job-changers and job-stayers was 7 percent and 4.5 percent, respectively.
Following the ADP numbers, President Donald Trump urged Federal Reserve Chair Jerome Powell to cut interest rates.
“ADP number out!” Trump wrote in a Truth Social post. “Powell must now lower the rate. He is unbelievable! Europe has lowered nine times.”
Mixed Employment Data
This comes two days before the May non-farm payrolls report. The consensus estimate suggests the U.S. economy created 130,000 jobs and the unemployment rate held steady at 4.2 percent.
The monthly employment numbers do highlight the usual divergence between the ADP and Bureau of Labor Statistics labor data. The former relies on payroll data from ADP’s clients in the private sector, while the latter depends on surveys of businesses and households, as well as government jobs.
Meanwhile, the latest batch of numbers has sent mixed signals in the broader jobs arena.
Although market watchers view the Job Openings and Labor Turnover Survey (JOLTS) as a lagging indicator, the numbers provided a snapshot of the U.S. labor market during the period of tariff-driven economic volatility.
Despite the better-than-expected JOLTS numbers, cracks may be starting to form in specific sectors, says Comerica Bank Chief Economist Bill Adams.
“Tariff uncertainty pushed down job openings in manufacturing to the least since 2020 in April,” Adams said in a note emailed to The Epoch Times. “Surveys of manufacturers have been weak in recent months, citing both the direct expense of tariffs as well as the overhang of uncertainty as businesses wait to see how policy settles.”
In addition, hourly earnings growth for U.S. small business workers reached a four-year low at 2.77 percent.
However, while employment gains and earnings were flat last month, the overall health of the labor market remains solid, says Paychex president and CEO John Gibson.
What This Means for the Fed
Despite the president’s repeated demands for interest rate cuts, the U.S. central bank is expected to hold steady for the fourth consecutive meeting later this month.
Monetary policymakers have stated that they would reconsider their paused stance if labor market conditions deteriorate rapidly. However, both the data and wider uncertainty should keep the Fed’s benchmark federal funds rate unchanged, says Allison Shrivastava, an economist at the Indeed Hiring Lab.
“The backwards-looking nature of this data only contributes to the cloudy view ahead.”
She said the May jobs report could potentially offer a “clearer picture” of what lies ahead.
A chorus of Fed officials has provided a generally optimistic assessment of economic conditions.
Goolsbee believes that interest rates will be a “fair bit” lower over the next 15 months.
The June Federal Open Market Committee policy meeting will also include updates to the quarterly Summary of Economic Projections, which presents officials’ expectations for the economy and policy.
