ADP jobs report a ‘mixed bag,’ economist says

Private employers added 152,000 people to their payrolls in May, according to the latest report from ADP. It was fewer than the 175,000 economists polled by Bloomberg were expecting. ADP Chief Economist Nela Richardson says that though the headline number shows growth, the report was a “mixed bag” because “what we’re seeing is weakness in manufacturing but also weakness in B2B businesses tied to white collar jobs and professional business services and information.” Richardson adds that “this is not a one-note jobs market.”

When discussing the slowing in hiring in the leisure and hospitality space, Richardson notes it may be a sign that “the consumer is a little battle weary, that the prices are starting to erode some of their purchasing power.”

Watch the video above to hear what Richardson says this latest ADP report may mean for the Federal Reserve.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Stephanie Mikulich.

Video Transcript

Private employers added 152,000 jobs in May.

Now that’s a slowdown caused by a sleep, a steep decline in manufacturing.

This according to AD P research institute’s monthly National Employment Report and to help us break down the numbers and what it could mean for the labor market as a whole, we couldn’t think of a better person to call in than the AD P chief economist Nela Richardson.

Great to see you as always here.

I just wanna get your read in on this month’s report.

Hi, Brad.

Great to be with you.

I really enjoyed the breakdown.

We look at 25 million paychecks every month for this number and what we’ve seen over the last couple of months uh compared to May is that the last couple of months have been strong, May comparatively has been a step down.

So 100 and 52,000 jobs created, as you noted, it was really the good sector that showed up in the loss category, specifically manufacturing and natural resources.

And so we’re going to be looking about at this N number carefully going into spring because it’s a mixed bag.

Yes, the headline number is solid.

But what we’re seeing is weakness in manufacturing, but also weakness in B to B businesses tied to white collar jobs and professional business services and information.

So this is a not a one note jobs market.

There’s some weak name trends tied to both consumers and producers that bears attention.

And so with that in mind, there were two interesting nuggets within this report and, and it was where we saw some of the the drawbacks here, you mentioned manufacturing and that as part of the goods producing.

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But then it was also in leisure and hospitality where we had seen that continue to be one of the areas that needed to have the biggest rebound because it was hit hardest during the pandemic.

All of these things considered.

It’s almost a little bit of a read through on the consumer as well.

And I, I wonder from your perspective what the state of the consumer is as we’re kind of pairing some of the jobs data that we’re getting over the course of this week.

Well, it’s a great question, Brad and let’s, let’s note that the labor market is one of the main reasons why the consumer has been so resilient uh over the last two years, uh the labor market and that very low unemployment rate below 4%.

This is the longest stretch of below 4% unemployment since the 19 sixties.

And so having that stability under to under grid, the consumer has really helped prop up spending.

But we saw last week that both consumer incomes and consumer spending dipped down a little bit.

And this week, we’re seeing a weakness in a, a stalwart industry when it comes to leisure and hospitality.

It’s really made up a lot of the gains over the last two years.

And now we’re seeing that gained slow to just 12,000 jobs produced in May.

So what does that say about the consumer?

It may be saying that the consumer is a little battle weary that the prices are starting to erode some of their purchasing power.

And that’s something that we should be watching carefully as we go into the summer months.

Absolutely.

And it will certainly adjust some of my own vacation spending as well.

Uh When we think about what this all means for the Fed, I mean, at this juncture fed chair, Jay Powell, if he wasn’t before, he’s a household name and people are trying to figure out what the data that’s coming out this week on the employment front may signal about the tenor for the Feds discussion.

Do you expect a massive shift?

And what’s the trend that they could be taking away from some of the data that’s come out this week?

I think that the Federal Reserve has been very patient in terms of getting inflation back down to their 2%.

So I don’t expect massive moves from the Fed.

What I expect is what we’ve seen thus far, which is caution a little bit of patience uh to see if an inflation can turn down to that 2% benchmark.

What we also produce in the AD P report is pay growth.

And in some sense, that number is even more important than the jobs number because pay and wages are the bridge between the labor market to inflation data.

And so far pay growth has been resilient as well.

It’s been at 5% year over year for people who’ve stayed on the job over the last year.

Um compared to pre pandemic levels, that’s a really robust pay growth.

It means for the fed is if we’re not seeing any declines in pay growth, that means that inflation could stick around a little bit longer than they’d like.

And so they really have to walk this line between a solid labor market which we’ve seen continue to see and any pockets of weakness as well as stronger uh wage growth that could keep inflation sticking around longer.

All right, Nayla Richardson, we got to leave things there.

Ad P chief economist.

Great to see you as always.

Thanks so much.

Thank you.