Summary: ADP payrolls up 128,000 in May, less than consensus expectations; April rise revised down by 45,000; small business “struggling to keep workers”; positions up in medium, large businesses, down in small ones again; little over 80% of gains in services sector, led by education/health sector.
The ADP National Employment Report is a monthly report which provides an estimate of US non-farm employment in the private sector. Since publishing of the report began in 2006, its employment figures have exhibited a high correlation with official non-farm payroll figures, although a large difference can arise in any individual month.
The latest ADP report indicated private sector employment increased by 128,000 in May, less than the 295,000 increase which had been generally expected. April’s rise was revised down by 45,000 to 202,000.
“Under a backdrop of a tight labour market and elevated inflation, monthly job gains are getting closer to pre-pandemic trends, while it appears small businesses are struggling to keep workers given the competition for workers,” said NAB senior economist Tapas Strickland.
US Treasury yields declined at the short end on the day while longer-term yields were either steady or a little higher. At the close of business, the 2-year Treasury bond yield had shed 2bps to 2.63%, the 10-year yield had returned to its starting point at 2.91% while the 30-year yield finished 2bps higher at 3.08%.
In terms of US Fed policy, expectations for higher federal funds rates over the next 12 months were essentially unchanged. At the close of business, June contracts implied an effective federal funds rate of 1.085%, 26bps higher than the current spot rate while July contracts implied a rate of 1.405%. May 2023 futures contracts implied 3.16%, 233bps above the spot rate.
Employment numbers in net terms increased at medium-sized and large businesses while contracting in small enterprises for a second consecutive month. Firms with less than 50 employees lost a net 91,000 positions, mid-sized firms (50-499 employees) added 97,000 positions while large businesses (500 or more employees) accounted for 122,000 more employees.
Employment at service providers accounted for a little over 80% of the total net increase, or 104,000 positions. The “Education & Health” sector was the largest single source of gains, with 46,000 more positions. Total jobs among goods producers increased by a net 24,000 positions.
Prior to the ADP report, the consensus estimate of the change in May’s official non-farm employment figure was +329,000. The non-farm payroll report will be released by the Bureau of Labor Statistics this coming Friday night (AEST), 3 June.