Robust U.S. Private Payroll Growth Exceeds Expectations, but Shows Signs of Moderation

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Private payrolls in the United States experienced stronger-than-expected growth in May, indicating ongoing resilience in the labor market despite higher interest rates. The ADP National Employment report, released on Thursday, revealed that private employment rose by an impressive 278,000 during the month, surpassing economists' estimates of 170,000. However, this figure represented a decline from the downwardly revised April level of 291,000.

The report highlighted that job gains were unevenly distributed across sectors, with the leisure and hospitality industry, as well as natural resources and construction, leading the way. These gains helped offset losses in manufacturing and finance positions, reflecting a fragmented employment landscape.

Although job growth proved robust, wage growth showed signs of slowing down. ADP reported a broad-based deceleration in pay increases. Workers who switched jobs experienced a monthly increase in compensation of 12.1%, a full percentage point lower than the previous month. Similarly, those who remained in their current roles saw a slight slowdown in wage growth, with an increase of 6.5% compared to the previous month's 6.7%.

ADP's chief economist, Nela Richardson, commented on the trend, noting that pay growth is decelerating significantly. Despite robust hiring, wage-driven inflation may be less of a concern for the economy.

While not directly indicative, the ADP figures provide insight into the upcoming release of the Labor Department's comprehensive nonfarm payrolls report, scheduled for Friday. Economists predict that the U.S. economy added around 180,000 jobs in May, a decrease from the 253,000 recorded in April.

With regards to monetary policy, policymakers at the Federal Reserve closely monitor employment data to assess the impact of their year-long tightening cycle on the labor market. Any softening in job growth could align with their goal of slowing inflation.

As the labor market continues to evolve, market participants eagerly await the release of the nonfarm payrolls report for a more comprehensive understanding of the employment situation in the United States.

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