Private payrolls rose more than expected in June as businesses sought out more workers to fill job openings present across the recovering economy.
ADP reported Wednesday morning that private payrolls increased by 692,000 in June for a sixth straight monthly rise. Consensus economists were looking for an increase of 600,000, according to Bloomberg consensus data. In May, private employment grew by 886,000 jobs, according to ADP's downwardly revised print.
The services sector brought back another sizable number of jobs in June to help fill the employment deficit caused last year by the pandemic. Leisure and hospitality jobs rose by 332,000 in June, adding to the 414,000 brought back in May. Education and health services also posted job gains of 123,000, also adding to a rise of 130,000 from the prior month. Information and management jobs were the only categories to post net job losses in June.
The goods-producing sector saw job gains across the board, with each of mining, construction and manufacturing industries bringing back workers on net. Construction payrolls increased by 47,000 to nearly match May's 50,000. Manufacturing jobs decelerated to see a rise of 19,000 jobs, or less than half the May gain.
Recent economic data has pointed to a labor market still making strides toward recovering, but at a slowing pace compared to the start of the year. New jobless claims, for instance, have popped back above 400,000 per week – a level well off pandemic-era highs, but persistently elevated compared to pre-virus levels.
And purchasing managers' indices from both IHS Markit and the Institute for Supply Management have pointed to slowing improvements in employment after an initial reopening-fueled surge. Employers across industries have reported having trouble finding qualified workers to fill job openings, capping what has otherwise been a strong ramp-up in economic activity.
"This lack of worker supply has been attributed to four key factors. Firstly, many schools are on remote learning, forcing parents to stay at home as well," James Knightley, ING chief international economist, wrote in a note Tuesday. "Secondly, there is still some hesitancy to return to work from some people given the pandemic is ongoing. Thirdly, many people who lost their jobs may have chosen to take early retirement, particularly with surging equity markets having boosted pension pots. Then fourthly we have the extended and uprated federal unemployment benefits that may have diminished the financial attractiveness of returning to work."
"We strongly suspect that labor market strains will linger for several more months given we are now entering school summer holiday season and for most people the Federal benefits will continue through to September," he added.
Friday's "official" monthly jobs report from the U.S. Labor Department will serve as a key data point to confirm the trends seen in ADP's data.
Last month, ADP's first print for May overstated the pace of private payrolls gains compared to the Labor Department's report. The government's data showed 492,000 private payroll gains in May, or less than half the sum reported in ADP's initial estimate.
"The signal for Friday’s official numbers is unclear. ADP’s measure undershot the official payroll data for most of the pandemic, but suddenly overshot in April and May," Ian Shepherdson, chief economist for Pantheon Macroeconomics, said in an email Wednesday morning. "This abrupt swing likely was due to ADP’s model overweighting the strength of macroeconomic variables like retail sales and jobless claims, while ignoring the shortage of labor supply. Payroll growth has not kept pace with demand because the participation rate remains depressed."
The ADP report has typically been an unreliable indicator of the results in the government report due to differences in survey methodology, with ADP counting individuals on active payrolls during the survey period as employed, whereas the Labor Department includes those receiving paychecks during the survey period. The absolute error between the ADP and Labor Department private payrolls data has been 486,000 since January, according to an analysis from High Frequency Economics.
The Labor Department will release its June jobs report on Friday, which is expected to show the U.S. economy added back 700,000 non-farm payrolls, including 610,000 private payrolls.
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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