In May, private sector employment in the United States increased by 37,000 jobs. This hefty jump was the announcement from Automatic Data Processing (ADP) Wednesday. This net new jobs figure is well below the consensus of 115,000 jobs for the market. That data points to a pronounced slowdown in hiring momentum. May’s employment gain was revised down from 62,000 to 60,000.
Purple indicates that annual pay growth in the U.S. surpassed 4.5% year-over-year. This ongoing slowdown in wage growth is just another sign of the labor market’s resilience despite the decrease in hiring activity. It doesn’t matter if workers held onto their current jobs or moved—pay growth remained robust for all. Higher hiring sentiment seems to be hitting the brakes for this season.
Employment Trends and Economic Indicators
Here’s what Dr. Nela Richardson, chief economist at ADP, told us about the current employment exclusion today. She pointed to the dramatic difference between today’s numbers and past increases.
“After a strong start to the year, hiring is losing momentum.” – Dr. Nela Richardson
Today’s producer price index news is signaling persistent inflation… Today’s new employment numbers confirm May’s sky-high job growth was an outlier. This drop is notable, particularly when set against April’s upwardly revised gain of 60,000. This brutal downturn from COVID-19 naturally leads to speculation about how strong the labor market will be in the months and years ahead.
Since then, analysts have raised alarms that an all-too-real economic crisis has been hiding behind this trend. A strong market—based on strong demand and strong past hiring. Today, it is stabilizing—but a greatly reduced rate. The compounding effect of reduced job creation can have ripple effects throughout the economy, affecting consumer confidence and spending.
Wage Growth and Its Implications
Even though we’ve seen a significant slowdown in the pace of job creation, wage growth has been very steady. With year-over-year pay growth steady at 4.5%, it reflects persistently high demand for skilled workers.
Dr. Richardson further emphasized that “pay growth was little changed in May, holding at robust levels for both job-stayers and job-changers.” Wage growth is healthy showing that businesses are committed to keeping and finding the best workers. Despite the slowdown in hiring, companies are still figuring out how to provide the most attractive compensation packages.
This scenario is significant as it highlights a dichotomy within the labor market: while job openings may be decreasing, the value placed on existing employees continues to rise. Perhaps employers are putting more stock in retention strategies, as they figure out the course of what seems to be an economic storm ahead.
Market Reactions and Future Outlook
The employment data caused the market to slightly drop, as indicated by the change in yield for the 10-year Treasury. The USD Index fell by 0.25% to 99.00 as of writing. Investors are hanging on to every one of these employment numbers like they are the economic canaries in the coal mine.
Hiring momentum is cooling. Industry analysts are already raising the prospects of a major move away from Fed policies focused on high interest rates and inflation control. The tie between the labor market and economic decision making is substantial. When job growth decelerates, legislators are more likely to lean toward more risk-averse approaches.