US private payrolls growth slows sharply in May

The ADP National Employment Report indicated that U.S. private employers added only 37,000 jobs in May, the smallest gain since March 2023 and significantly below the Reuters poll forecast of 110,000. The services sector drove the gains, while goods-producing industries saw declines. Economists suggest the ADP report has a poor track record and may not accurately reflect the labor market, with focus now shifting to the more comprehensive BLS employment report due Friday, which is expected to show a private payroll increase of 120,000.

Analysis

U.S. private employers added only 37,000 jobs in May, according to the ADP National Employment Report, marking the smallest increase since March 2023 and falling significantly short of the 110,000 jobs anticipated by economists polled by Reuters; this followed a downwardly revised gain of 60,000 in April. The services sector was the primary driver, contributing 36,000 jobs with gains in financial activities, information, and leisure and hospitality, while the goods-producing sector experienced a decline of 2,000 payrolls, impacted by losses in manufacturing and mining. However, the report's significance is tempered by widespread skepticism among economists regarding its predictive accuracy for the official Bureau of Labor Statistics (BLS) data, as highlighted by Oliver Allen of Pantheon Macroeconomics who cited its poor recent track record and suggested ignoring its message. Carl Weinberg of High Frequency Economics further advised using ADP primarily for broad trend assessment, noting a steady decline in its private sector employment estimates since December. This labor market data emerges amidst economic uncertainty linked to tariff policies and a gradually easing labor market, with attention now shifting to the more comprehensive BLS employment report due Friday, which is forecast to show a private payroll increase of 120,000 and an overall nonfarm payroll rise of 130,000 for May, with the unemployment rate expected to remain stable at 4.2%.

Key Decisions for Investors

• Investors should exercise caution in drawing definitive conclusions about U.S. labor market strength solely from the May ADP report, given its substantial miss against expectations and its historically poor correlation with official BLS figures.
• Greater weight should be assigned to the forthcoming Bureau of Labor Statistics employment report for May, as it is broadly considered a more reliable indicator of labor market conditions and will be critical for assessing economic trajectory.
• Monitor the broader narrative of a gradually easing labor market and persistent economic uncertainties, including those stemming from trade and tariff policies, as these factors will likely influence market sentiment and Federal Reserve policy considerations more than this specific ADP release.