Private Sector Hiring Hits 2-Year Low

Private Sector Job Growth Slows Drastically

Private-sector employment grew by just 37,000 jobs in May, marking the weakest addition since March 2023, according to the latest ADP report. The figure sharply missed economists’ predictions of 115,000 jobs and also fell from April’s revised total of 60,000. This significant drop signals a deceleration in hiring momentum, which had shown strength earlier in the year. The report highlights growing challenges in the labor market amid increasing economic uncertainty.

Key Factors Behind the Hiring Slowdown

The hiring slowdown is largely attributed to weak consumer sentiment and ongoing trade policy uncertainty. ADP’s Chief Economist Nela Richardson described the environment as “driving in fog,” with businesses hesitating due to unclear economic conditions. Trade policy disruptions, particularly the effects of fluctuating tariffs, have further compounded the hesitation. These factors are creating a cautious approach to hiring, especially in sectors sensitive to global trade and consumer demand.

Wage Growth Remains Resilient Despite Challenges

Despite the hiring slowdown, wage growth has remained robust, reflecting underlying resilience in the labor market. Workers who stayed in their roles experienced a 4.5% annual pay increase, while those who switched jobs saw a more significant jump of 7%. These figures are consistent with previous months, signaling stability in wage growth. The robust pay increases suggest that while hiring has slowed, employers continue to compete for talent, indicating the labor market has not entirely lost its footing.

Reactions and Broader Economic Implications

Former President Donald Trump responded to the ADP report by urging Federal Reserve Chair Jerome Powell to lower interest rates, emphasizing the need for economic stimulus to counter weak job growth. The upcoming federal jobs report from the Bureau of Labor Statistics, expected later this week, is likely to confirm the broader labor market slowdown. Economists project nonfarm payroll growth to decrease to 130,000 in May, down from April’s 170,000. These trends could weigh heavily on future monetary policy decisions, as the Federal Reserve navigates the balance between economic growth and inflation control.