Private-sector firms added just 37,000 jobs in May, the lowest total in more than two years

ADP reported that private-sector job growth slowed significantly in May, adding only 37,000 jobs, well below the expected 130,000 and the lowest monthly total since March 2023, signaling hiring hesitancy amid economic uncertainty and trade policy concerns. The slowdown was concentrated in the goods sector and among small businesses, with firms under 50 employees shedding 13,000 jobs; however, pay growth remained stable at 4.5% for job stayers and 7% for job switchers, suggesting the labor market is weak but not collapsing, while prompting increased pressure from President Trump on the Federal Reserve to cut interest rates.

Analysis

Private-sector employment growth in the US experienced a significant slowdown in May, with ADP reporting the addition of only 37,000 jobs, markedly below economists' expectations of 130,000 and a sharp decline from the 60,000 jobs added in April. This figure represents the lowest monthly total since March 2023, signaling what ADP's Chief Economist, Nela Richardson, termed "hiring hesitancy" attributed to downbeat consumer sentiment and trade policy uncertainty, particularly President Trump's tariff strategies. The deceleration was most pronounced in the goods sector, which lost 2,000 jobs, and among small businesses with fewer than 50 employees, which shed 13,000 jobs. This concern is amplified by New York Fed data showing small businesses exposed to higher tariffs are experiencing reduced profits, modest employment cuts, and are passing costs to consumers. Despite the hiring weakness, pay growth remained stable, with increases of 4.5% for job stayers and 7.0% for job switchers, suggesting the labor market is not collapsing. US stock futures initially fell on the news, with Dow futures dropping 40 points and S&P 500 and Nasdaq 100 futures sliding 0.1% and 0.2% respectively, though they recovered shortly after the market opened. The report prompted intensified calls from President Trump for the Federal Reserve to lower interest rates, while the Fed's May policy statement had already noted increased risks of both higher unemployment and inflation.

Key Decisions for Investors

• Investors should closely monitor the official Department of Labor jobs report, expected Friday, for confirmation of the labor market slowdown, as ADP figures can diverge from official government data.
• Given the cited impact of trade policy uncertainty and consumer sentiment on hiring, these factors warrant continued scrutiny for their potential effects on corporate earnings and broader economic activity.
• While the weak hiring data may increase pressure on the Federal Reserve to consider interest rate cuts, persistent wage growth and the Fed's cautious stance suggest a complex outlook for monetary policy adjustments, requiring careful observation of subsequent economic indicators.