Trade wars dent hiring: ADP says businesses created paltry 37,000 private-sector jobs

Private sector job creation slowed significantly in May, with ADP reporting only 37,000 new jobs, the smallest increase in over two years and well below the expected 110,000. The slowdown is attributed to ongoing trade wars, which have caused hiring hesitancy among firms, particularly in manufacturing. While the ADP report is not always indicative of the official government jobs estimate, the weak figure prompted President Trump to renew calls for the Federal Reserve to lower interest rates, and led to premarket losses for the Dow and S&P 500.

Analysis

Private sector job creation experienced a significant deceleration in May, with ADP reporting a mere 37,000 new positions, marking the smallest monthly gain in over two years and falling substantially short of the 110,000 consensus forecast. This slowdown, which follows a revised 60,000 jobs added in April, is primarily attributed to escalating global trade wars, which have induced "hiring hesitancy" among businesses, as stated by ADP's chief economist Nela Richardson. The manufacturing sector and other goods-producing businesses, identified as being hardest hit by trade tensions through disrupted import and export flows, saw employment decline. In contrast, service-oriented industries, particularly restaurants and hotels, continued to add staff, indicating persistent consumer activity in these areas despite broader economic concerns. The May figure of 37,000 jobs starkly contrasts with the average monthly job gain of 139,000 observed from January to March, prior to the recent intensification of trade disputes. While the ADP report is not a definitive predictor of the official government jobs numbers, which economists forecast at 125,000 for May, it historically moves in tandem and signals a cooling labor market. The weak data prompted President Trump to reiterate his call for the Federal Reserve to lower interest rates, though the Fed remains unwilling to act until it assesses the inflationary impact of the trade wars. The economic outlook is described as "driving in the fog," implying a slowed expansion rather than an immediate halt, with potential for recovery if trade tensions subside. The immediate market response, reflected by a strongly negative sentiment score of -0.65, saw the Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) relinquish premarket gains, with both indices showing negative per-ticker sentiment.

Key Decisions for Investors

• Investors should exercise increased caution, particularly towards sectors highly sensitive to trade policy and economic cycles, such as manufacturing, given the reported hiring slowdown and ongoing trade uncertainties.
• Closely monitor the upcoming official government jobs report and any developments in global trade negotiations, as these will be critical determinants for near-term market direction and the broader economic outlook.
• Assess the potential for a more dovish stance from the Federal Reserve if subsequent economic data confirms a weakening trend, which could significantly influence fixed income valuations and specific equity sectors.