Private employers in the U.S. created only 38,000 jobs in May, a dramatic drop from the 177,000 jobs created in the prior month, and significantly lower than the 100,000 new jobs that economists had expected, according to a report from ADP.
This is a disappointing report ... reflecting a troubling [economic] environment, that's for sure, said Joel Prakken, chairman of Macroeconomic Advisers LLC, which conducted the report for ADP.
The main story is a very sharp deceleration in job growth that is broad based.
Paul Ashworth, Chief US Economist at Capital Economics, noted that the dismal data “seems to confirm that labor market conditions have deteriorated over the past few weeks.”
Ashworth added that the 38,000 job-increase in May was the smallest since last September.
“Indeed, the monthly gain exceeded 100,000 in each of the past seven months, so this is a big drop off,” he said.
“It is possible that the severe storms/tornadoes were a factor. In addition, we know that auto manufacturers have temporarily laid off some workers, as the disruption to parts supplies worsens.”
Ashworth also said the ADP sectoral breakdown shows that the biggest factor behind the drop off in net job creation was a slowdown in growth in the service sector.
Prakken explained that the sharp drop in new jobs reflects the tepid growth in GDP.
There is not enough economic growth to generate new jobs, Prakken said. “[The ADP report] is not disappointing in isolation. A series of data releases have disappointed in the past month including personal income is down, durable goods orders and deliveries were disappointing, housing starts were disappointing, home prices are still falling.
The disappointing numbers raises fears that Friday’s nonfarm payroll report (which includes both public and private employers) will also be less than stellar,
Economists are currently expecting that the jobs report from the Labor Department will show the additional of 200,000 new jobs and the unemployment rate slipping to 8.9 percent.
Ashworth expects worse numbers – a more modest 150,000 increase in non-farm payrolls for May, down from 244,000 in April.