The ADP report released Wednesday revealed a dramatic slowdown in US private sector job growth in May, hitting its lowest level in over two years, signaling signs of a weakening labor market. The US economy added only 37,000 jobs in May, far below the anticipated 110,000 and also lower than the revised April figure of 60,000.
This disappointing report, often referred to as the "precursor to the non-farm payrolls," triggered an immediate reaction in financial markets, with gold briefly spiking before retracing and the US dollar index dipping below the 99 level.
The report showed a contraction in the goods-producing sector, shedding 2,000 jobs, driven by declines in natural resources and mining (-5,000 jobs) and manufacturing (-3,000 jobs). However, the construction sector saw an increase of 6,000 jobs, partially offsetting the losses.
Within the service-providing sector, leisure and hospitality (38,000 jobs) and financial activities (20,000 jobs) showed some strength. However, job losses in professional/business services (-17,000 jobs), education and health services (-13,000 jobs), and trade, transportation, and utilities (-4,000 jobs) weighed down the overall numbers.
The report also revealed a disparity in performance based on company size, with companies with fewer than 50 employees losing 13,000 jobs, while companies with 500 or more employees shed 3,000 jobs. Mid-sized companies, in contrast, added 49,000 jobs.
The report also indicated that the annual pay growth for job stayers was 4.5%, while the annual pay growth for job changers was 7%. These figures were largely unchanged from April, but still considered "robust.""
The report sparked mixed reactions, with some calling for interest rate cuts by the Federal Reserve. Meanwhile, Federal Reserve officials have expressed optimism about the economy, but have also noted the potential risks posed by tariff policies on inflation and employment.
The Federal Reserve is widely expected to hold interest rates steady at its next meeting in two weeks. It remains to be seen how this report will influence future monetary policy decisions.
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