ADP Sets Cautious Tone for Friday’s Labor Department Report on Job Growth

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There may be a bit of a more muted expectations for Friday’s key payrolls and unemployment report from the U.S. Department of Labor. The private sector payrolls report from ADP has set the tone here, although investors and employers should strongly consider that ADP uses its own data and the Labor Department data pertains to a sample from the entire U.S. labor force.

According to ADP’s data, private sector employment rose by 177,000 in June from May. Dow Jones (Wall Street Journal) was calling for a gain of 185,000. The ADP report for May was 178,000 and that was also short of expectations.

Of the 177,000 private sector jobs added in June, small businesses (up to 49 employees) were only 29,000 additional jobs. The medium-sized businesses (50 to 499 employees) led the gains at 89,000 jobs added in June, and large business (500 and more employees) added 69,000 jobs.

While this ADP report is short of expectations, the reality is that the U.S. jobs market is rather tight and it still marching toward full employment. ADP’s report for June included two economist observations, as it does each month. Ahu Yildirmaz, vice president and co-head of the ADP Research Institute said, “The labor market continues to march towards full employment. Healthcare led job growth once again and trade rebounded nicely.” Mark Zandi, chief economist of Moody’s Analytics said “Business’ number one problem is finding qualified workers. At the current pace of job growth, if sustained, this problem is set to get much worse. These labor shortages will only intensify across all industries and company sizes.”

The tagline from CNBC should also set the tone of what is being seen by employers and workers: “Private payrolls miss expectations as companies can’t find enough people to hire.”

Dow Jones is calling for Friday’s Department of Labor report on nonfarm payrolls to come in at a gain of 195,000 for June. That would compare to a gain of 223,000 in May. While nonfarm payrolls measure the full picture, the government’s report on private sector payrolls in May grew by 218,000 in the preliminary report.

The ADP report is derived from ADP’s actual payroll data. It measures the change in total nonfarm private employment each month on a seasonally adjusted basis.