Is US private sector crumbling? ADP says June sees first job losses in over a year

The US jobs market has shown surprising signs of weakness in June, as private sector businesses cut 33,000 positions, the first monthly drop in more than a year, according to new data from payroll processor ADP released Wednesday. The report is just the opposite of Wall Street's optimism, with the S&P 500 recently closing out the month at record levels, as per a CNBC report.

Economists polled by Dow Jones had projected a rise of 100,000 for the month, while the May job growth figure was revised even lower to just 29,000 jobs added from 37,000, as reported by CNBC.

Cautious Hiring Replaces Layoffs as Key Labor Trend

ADP’s chief economist, Nela Richardson pointed out that, “Though layoffs continue to be rare, a hesitancy to hire and a reluctance to replace departing workers led to job losses last month,” as quoted in the report.

Professional Services, Healthcare Lead Job Losses

The payroll processing company found that most of the job losses came in service roles tied to professional and business services and health and education, with professional/business services notching a decline of 56,000, while health/education saw a net loss of 52,000, as reported by CNBC.

Manufacturing, Mining Add Jobs Despite Broader Downturn

While there was job growth in goods-producing roles across industries such as manufacturing and mining, with goods-producing positions increasing by 32,000 in June, as per the report.

ADP also revealed that the Midwest and Western US had the highest contractions in June, falling by 24,000 and 20,000, respectively, as per a CNBC report. The firm found that the Northeast lost 3,000 roles, while the Southern US was the only region tracked by the ADP to see payrolls expand on net in the month, recording a rise of 13,000 positions, as reported by CNBC.

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Small Businesses Suffer Most From Hiring Pullback

The smallest firms reported more job losses in June, compared to their larger counterparts, and businesses with over 500 employees saw the biggest payroll growth in the month as it rose 30,000, while businesses with fewer than 20 employees accounted for 29,000 lost roles on net, as per the report.

ADP Data Raises Questions Ahead of Key Government Report

However, according to the CNBC report, the "ADP report has a spotty track record on predicting the subsequent government jobs report, which investors tend to weigh more heavily." This is because May’s soft ADP data ended up differing significantly from the monthly jobs report figures that came later in the week, reported CNBC.

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Nonfarm Payrolls Report Expected to Show Modest Growth

The government’s nonfarm payrolls report will be released on Thursday, with the Dow Jones estimate showing that economists are expecting a 110,000 rise for June's data, according to the report. While the economists are anticipating that the unemployment rate will increase to 4.3% from 4.2%, as per the CNBC report. However, a few economists might even revise down their job reports estimates after the ADP’s data got released, according to the report.

Even the weekly jobless claims data is scheduled for Thursday, with economists projecting 240,000, as per the CNBC report. The data of labour statistics comes during a shortened trading week, with the market closing early on Thursday and remaining dark on Friday in honor of the July 4 holiday, according to the report.

FAQs

Which industries lost the most jobs?
Professional services and health/education saw the biggest declines.

Can we trust the ADP report?
It’s useful, but often misaligned with government jobs data.