Private wages rose by 278,000 in May, well above expectations, says ADP

The U.S. labor market posted another month of surprising strength in May, as companies added jobs at a pace well above expectations, according to a report Thursday from payroll processing firm ADP.

Private sector employment increased by a seasonally adjusted 278,000 for the month, ahead of the Dow Jones estimate of 180,000 and slightly lower than the downwardly adjusted 291,000 in April. May’s increase took wage growth so far in 2023 to 1.09 million.

The ADP report noted that the distribution of job gains was “fragmented” for the month, as gains were concentrated in leisure and hospitality, which added 208,000 positions, and natural resources and mining, which posted a gain of 94,000.

Construction provided 64,000 jobs, but several other categories saw a decline.

For example, manufacturing saw a decrease of 48,000, financial activities lost 35,000 and education and health services decreased by 29,000. Trade, transportation and utilities saw an increase of 32,000, while the other services category increased by 12,000.

From a size perspective, companies with 500 or more workers lost 106,000 jobs. Small firms, with fewer than 50 workers, added 235,000 jobs.

One area of ‚Äč‚Äčnote for ADP was a slowdown in the pace of wage growth, with annual wages up a still strong 6.5% in May, but down from a 6.7% increase in April. Those who changed jobs reported an annual increase of 12.1%, up one percentage point from the previous month.

“This is the second month we’ve seen a full percentage point decline in wage growth for job switchers,” ADP Chief Economist Nela Richardson said. “Wage growth is slowing significantly, and wage-driven inflation may be less of a concern for the economy despite robust hiring.”

The ADP count comes a day ahead of the Labor Department’s more closely watched nonfarm payrolls report, which is expected to show job growth of 190,000 in May after a gain of 253,000 in April.

ADP’s report serves as a precursor to the government’s count, although the two can sometimes differ significantly. The Labor Department said private payrolls rose by 230,000 in April.

The wage gains have come despite the Federal Reserve’s efforts to tackle inflation and slow the labor market through a series of rate hikes. Central bank officials have said in recent days that they may be optimistic about skipping another hike in June as they weigh the impact of policy tightening that began in March 2022.

A separate report on Thursday showed that initial applications for unemployment benefits were little changed last week.

Jobless claims totaled 232,000 for the week ended May 27, up 2,000 from the previous week and slightly below the Dow Jones estimate of 235,000. Continuing claims also rose to 1.795 million.

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