ADP, a private payroll processor, reported an unexpected, massive increase in hiring in June, just one day before the Bureau of Labor Statistics' monthly key jobs report.
ADP’s National Employment Report was produced in collaboration with Stanford Digital Economy Lab. It showed that the private industry added 497,000 new jobs last month. This is far more than the economists' expectation of 228,000 and ADP’s total May hires of 267,000.
ADP's numbers don't always match the official federal employment report that will be released on Friday at 8:30 am. It's often viewed as an indicator of overall hiring. By that measure, the massive jump on Thursday is another indication that the June jobs data is almost certain to show the US labor market adding jobs for 30 months in a row.
Although the current job growth is not as impressive as the 100-month streak of record-breaking employment between 2010 and 2019 when there was a record number of jobs created, the strength of the current streak continues to defy expectation: the above average gains are occurring at a period of rising, but declining, inflation, as well as an historic rise in interest rates as a result of a Federal Reserve counteroffensive against rising prices.
BLS data show that the 1.57 million new jobs created this year is the 10th-highest January-to May total since records began in 1939. The average monthly job growth of 314,000 is far higher than what was experienced before the pandemic and during the 100-month period following the Great Recession.
Some economists still believe it is only a question of time before these and other external forces become too heavy for employers to bear.
Sarah House, senior economics at Wells Fargo said that she expects a 'gradual cool-down' of the labor market.
She said that the jobs market was not in collapse. As we move away from [pandemic] opening, the impact of tighter money policy is becoming more evident. We expect the trend of job growth to continue.
Economists predict that the job gains in June will be below this average, and also lower than the 339,000 new jobs that were added in May. According to Refinitiv, the consensus estimates suggest that 225,000 net jobs were added last month. The 82 economists who make up the consensus have wildly different forecasts, ranging from 110,000 jobs to 288,000.
Refinitiv's estimates range from 3,4% to 3,8%.
This week was a data-heavy one
Due to the Fourth of Independence holiday, a lot of labor market information was released within 24 hours of government's monthly job report. In a typical month, the BLS Job Openings & Labor Turnover Survey and ADP's Private-Sector Payrolls Survey are released on Wednesdays and Tuesdays respectively. This gives economists and markets ample time to digest the key indicators.
ADP instead released its report just minutes before the weekly claims for unemployment benefits were published. JOLTS followed 90 minutes later.
According to Refinitiv's estimates, the consensus estimate for ADP’s report was for 228,000 net gains in private sector jobs during June. The range is even more wild, ranging from 95,000 to 334, 000 jobs. However, the actual number of 497,000 new jobs in June blew these estimates out of proportion.
ADP reports that the majority of gains were in service industries, namely leisure and hospitality. ADP's Chief Economist, Nela Richardson noted that there are signs of a peak in hiring.
She said that 'wages are continuing to decline in these industries and hiring is likely cresting following a late cycle surge'.
According to BLS, the number of job openings in May for JOLTS fell from 10.3 millions, which was revised upwards, to 9.82million.
The JOLTS May data revealed that new hires increased to 6.21 from 6.1, while quits jumped to 4.02 from 3.77 and layoffs decreased to 1.56 from 1.59.
In June, the number of job cuts decreased.
The Department of Labor announced Thursday that weekly unemployment claims rose to 248,000 in the week ending July 1.
The four-week average, which is a more reliable indicator of the state of the labor market, has been trending up in recent weeks.
In the last few months, headlines have been flooded with mass layoffs - mainly from large tech companies recalibrating their operations after the pandemic boom. Overall jobless claims are only marginally higher than pre-pandemic levels.
The job losses came in waves.
According to data released by Challenger, Gray & Christmas on Thursday, US employers cut 40,709 jobs in June, which is the lowest total monthly since October 2022.
According to the Challenger Report, June, even after excluding the massive job cuts expected in 2020, the 458,209 total layoffs announced during the first half of the year are the highest since 2009 when 896.675 were announced. According to the Challenger Report for June, the technology sector continues to be the largest contributor of job cuts.
Andy Challenger, senior Vice President of Challenger, Gray & Christmas, stated that the drop in job cuts was not uncommon for summer months. In fact, the month of June has historically been the slowest for announcements. It is possible that the job losses due to inflation or interest rates predicted will not occur, especially as the Fed keeps rates at their current level.
Unexpected blip, or increasing unemployment?
In May, the nation's unemployment rate spiked to 3.7%. It was previously 3.4%. It was surprising to see the sudden, sharp rise in unemployment rates -- especially given the recent job gains.
The monthly jobs report is made up of two surveys that measure the employment level and activity. One survey asks businesses about their employment, hours and wages; the other surveys households in order to determine the labor force status and demographic details of the population. The latter is the source of the unemployment rate, which can be volatile due to a small sample size.
Some economists have highlighted the divergence in the May surveys -- the household employment fell by a notable 310,000 jobs. Others say that it may not be just a one-month anomaly.
Aaron Terrazas said that Glassdoor's Chief Economist, Aaron Terrazas in a commentary published last week, 'It is likely to tick higher in June, to 3.9%, with the entry into the job market of recent graduates and the slowing reemployment rate among workers recently laid off.' If this happens, the unemployment rate would have increased by 0.5 percentage points within two months. This is an important benchmark to many economists.
A soft landing and labor hoarding
Recent data on the job market shows that many businesses are "labor hoarding" by keeping headcounts despite a softening in demand. House explained that the severe shortages of workers during the pandemic recovery, as well as the broader demographic shift as the Baby Boomer Generation ages out of the workplace are driving this in part.
She said that businesses would be more reluctant to fire workers in light of this.
She said that this helps to support the idea that a post-pandemic recovery could be achieved with a "soft landing" -- a decrease in inflation, without significant job losses or the onset of a recession.
She said that, despite the intention to keep employees on no matter what, when it comes down to it, their finances may dictate otherwise.