In May, ADP added 152,000 new jobs in the United States, the lowest level in three months, with April data significantly revised downwards

The ADP employment report, known as the "mini non-farm payroll," shows that due to a significant slowdown in the manufacturing sector, private sector employment in the United States slowed more than expected in May, further cooling the labor market.

On Wednesday, June 5th, the ADP Research Institute in the United States released a report showing that employment in the United States increased by 152,000 in May, the lowest level in three months, significantly below the expected 175,000. The data for April was revised down from 192,000 to 188,000.

With the increase in job opportunities, the annual wage growth has remained around 5% for three consecutive months, the lowest level since 2021. The wage growth for job switchers has declined for the second consecutive month to 7.8%.

After the data was released, short-term U.S. Treasury yields rose, while futures for the three major U.S. stock indexes edged lower.

Nela Richardson, Chief Economist at ADP, wrote in the report:

As we enter the second half of the year, job and wage growth are slowing. The labor market remains robust, but we are monitoring weakness in the production and consumption sectors.

Service sector drives job growth, while manufacturing slows significantly

Job growth mainly comes from the service sector, with 149,000 new jobs added in May. Specifically:

Trade, transportation, and utilities saw the most new jobs, adding 55,000.

Education and health services also saw significant job growth, reaching 46,000, while the financial industry added 28,000 jobs.

However, the leisure and hospitality industry, once a major player in service sector employment, saw a slowdown in job growth, adding only 12,000 jobs this year, the slowest pace since November last year.

The information sector lost 7,000 jobs, and professional and business services lost 6,000 jobs, the lowest level since 2021.

Other service industries added 21,000 jobs.

On the other hand, the contribution of goods manufacturing to job growth was minimal, with only 3,000 new jobs added in May.

The construction industry added 32,000 jobs.

Manufacturing employment has been shrinking for most of the past year and a half, with a loss of 20,000 jobs in May.

Employment in natural resources and mining decreased by 9,000.

Large enterprises added 98,000 new jobs, while small business scale shrank

From the perspective of employer size, there has been a significant polarization in the recruitment situation between large and small enterprises.

Large enterprises with 500 or more employees saw the largest increase in recruitment, reaching 98,000 people.

Employment in small companies with 50 or fewer employees decreased by 10,000 people.

The number of employees in medium-sized enterprises significantly increased, with an increase of 79,000 people.

ADP Slows Significantly, What About Non-Farm Payrolls?

The May non-farm payroll report will be released in two days, which is this Friday. Historically, ADP data has deviated from the non-farm trend for 8 consecutive months, but in the long-term trend, the two reports show consistent trends. The current consensus on Wall Street is that May non-farm payrolls will add 190,000 jobs, higher than the 175,000 jobs in April.

Although employment is likely to continue to grow, recent indicators have shown signs of a cooling job market: job vacancies in April fell to just over 8 million, the lowest level since February 2021. A decrease in job vacancies implies a weakening willingness of companies to recruit, indicating that future job growth may slow down.

Rubeela Farooqi, Chief U.S. Economist at High Frequency Economics, stated:

We expect the labor market to continue to ease in the future.

She added in a report:

But we expect job growth to remain positive, and the unemployment rate to stay low, which should provide support for economic activity this year.

A cooling labor market is expected to boost the confidence of the Federal Reserve in cutting interest rates. Currently, the Fed has kept interest rates at their highest level in over two decades, aiming to ease demand and curb inflation by raising borrowing costs.

In addition to the non-farm payroll report on Friday, the market is also eagerly awaiting next week's interest rate decision and Powell's press conference. Some analysts believe that if the employment report continues to surprise, a rate cut in September or even July may become possible again.

The CME FedWatch Tool shows that the probability of a 25 basis point rate cut in September is close to 60%.