Private sector employment increased by only 37,000 jobs in May, payroll giant ADP reported Wednesday, down from a revised figure of 60,000 in April, while annual pay increased 4.5% year over year.
The professional and business services sector, which includes accounting and tax preparation services, lost 17,000 jobs, although the financial activities sector, which includes banking, gained 20,000 jobs. The goods-producing sector lost 2,000 jobs.
“May job growth slowed for the second straight month, and this is after a strong start to the year where hiring was really solid, we’re seeing that same hiring lose momentum,” said ADP chief economist Nela Richards during a conference call Wednesday with reporters.
“New hiring is at the lowest level we’ve seen since March of 2023 when the economy shed 52,000 jobs,” she added. “I highlight that because we all know that the labor market has stayed strong despite that 2023 loss, and so the weak numbers we’re seeing now do not point to a labor market that’s collapsing, but there is hiring hesitancy that’s slowing the additional jobs growing. Most of the slowdown in hiring in May from April is coming from the goods side.”
The slowdown in hiring was particularly apparent at small businesses and large companies. Small businesses with between one and 19 employees lost 6,000 jobs last month, and businesses with between 20 and 29 employees lost 7,000 jobs. Large companies with 500 employees or more lost 3,000 jobs. Medium sized businesses with between 50 and 249 employees gained 51,000 jobs, although those with between 250 and 499 employees lost 2,000 jobs.
Year-over-year pay growth for people who stayed in their jobs was 4.5%, while pay for those who changed jobs rose 7% in May, which was unchanged from April’s revised figure. In professional and business services, the figure was 4.2% for job stayers.
“Hiring hesitancy persists due to downbeat consumer sentiment and trade policy uncertainty,” said Richardson. “Small firms and low-paid workers seem to be particularly vulnerable to this uncertainty. Small firms have generally thinner margins. They have less options in terms of capital markets, and they are more likely to be dependent on bank loans at the current interest rates.”
ADP is also seeing more “boomerang hires” in which former employees are rehired by the same company, at 35% in March, compared to the typical figure of 31% of new hires. “That’s a pretty strong uptick, according to this data, and that is consistent with firms that are trying to be more cautious in their hiring,” said Richardson. “They want to know that they can onboard a former employee more quickly. That employee knows the ropes, they know the culture, they can get the efficiency and productivity they need on day one, and so that’s why we think this hiring hesitancy has missed that firms are leaning on boomerang hires more than they have in the past.”
Overall, people are also working less, she noted. “We saw a tick down in average hours this month, 34.3 in May, versus just slightly higher, 34.5 in April,” said Richardson. “But layoffs are certainly still quite low. So if you put all this together, the key takeaway is a slowdown in hiring momentum, but still a labor market that’s in good enough shape to support consumer spending and provide the Fed the latitude to stay pat on rates while it continues to decipher its inflation outlook.”
