Weaker payroll gains reflect the spillover from job and spending cuts in the federal government, AI-related layoffs by large companies, as well as the initial impact on small businesses of the higher global tariffs imposed in April.

The ADP national employment report shows just 37,000 jobs added to private payrolls in May after a downward revision to up 60,000 in April (previously +62,000). The May increase is nowhere near the consensus of up 110,000 in the Econoday survey of forecasters. The small rise reflects the struggles of small businesses. By sector, there are mixed hiring conditions in the service-providing sector while goods-producers saw more declines.

Annual wage growth, however, remained robust up 4.5 percent compared to May 2024.
Service-providers' payrolls are up 36,000 in May. There are decreases of 13,000 in education and health services, -4,000 in trade, transportation, and utilities, and -17,000 in professional and business services. There are increases of 38,000 in leisure and hospitality, 8,000 in information, 20,000 in financial activities, and 4,000 in other services.

Goods-producers' payrolls are down 2,000 in May with increases of 6,000 in construction, but declines of 5,000 in natural resources and mining, and -3,000 in manufacturing.

Payrolls are up only for medium-sized establishments in May. Small firms (1-49 employees) shed 13,000 jobs, medium firms (50-499) added 49,000, and large firms (500+) cut 3,000.

The ADP pay insights report noted that the median annual increase for pay for job-stayers is up 4.5 percent from May 2024. This is the same as in April and the lowest since up 4.4 percent in June 2021. For job-changers, the May year-over-year increase is 7 percent. This is same rate as in April, and consistent with the past six months.

Private payrolls up an uninspiring110K in May versus 62K in April.

The national employment report from Automated Data Processing Inc. is computed from ADP payroll data and offers advance indications on the U.S. workforce. ADP's data cover more than 500,000 companies totaling more than 25 million employees. The report is produced by ADP Research Institute in collaboration with Stanford Digital Economy Lab.

Market players have become accustomed to the excitement on employment Friday and realize the rich detail of the monthly employment situation can help set the tone for the entire month. While economists have improved their nonfarm payroll forecasts over the years, it is not unusual to see surprises on employment Friday. To that end, the ADP's national employment report can help improve the payroll forecast by providing information in advance of the employment report.

The employment statistics also provide insight on wage trends, and wage inflation is high on the list of enemies for the Federal Reserve. Fed officials constantly monitor this data watching for even the smallest signs of potential inflationary pressures, even when economic conditions are soggy. If inflation is under control, it is easier for the Fed to maintain a more accommodative monetary policy. If inflation is a problem, the Fed is limited in providing economic stimulus.

By tracking jobs, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline - boosting up bond and stock prices in the process.