The latest ADP employment report has delivered a stark warning about the state of the U.S. job market. Private payrolls rose by just 37,000 in May, falling far short of the 114,000 expected. This marks the weakest hiring pace in over two years, signaling that momentum in the labor market is fading fast.
The slowdown is evident across multiple sectors. Goods-producing industries lost 2,000 jobs, with manufacturing shedding 3,000 positions and natural resources and mining down 5,000. Construction was the only bright spot, adding 6,000 jobs, but that gain was not enough to offset broader losses.
The service sector, which has been a pillar of job growth, is also showing cracks. Professional and business services lost 17,000 jobs, while education and health services declined by 13,000. Even trade, transportation, and utilities shed 4,000 positions, reflecting weak consumer demand.
Small businesses are feeling the pressure. Companies with fewer than 50 employees cut 13,000 jobs, while large firms lost 3,000 positions. Mid-sized businesses were the only ones adding jobs, with a 49,000 increase, but that was not enough to offset broader declines.
Wages remain elevated, but hiring is slowing. Annual pay growth for job-stayers held at 4.5 percent, while job-changers saw 7 percent increases. Despite strong wage growth, companies are pulling back on hiring, suggesting concerns over profitability and economic uncertainty.
The bond market reacted immediately. Treasury yields fell sharply following the report, as investors priced in a weaker labor market. The Federal Reserve’s next move will be critical, as policymakers weigh whether rate cuts are needed to stabilize hiring.
Sources:
https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202506040815PR_NEWS_USPR_____NY02984
https://x.com/MikeZaccardi/status/1930237038722216337