Private employers added only 37,000 jobs in May, marking the slowest hiring pace since March 2023 and signaling a potential cooling in the labor market despite continued wage growth of 4.5 percent year-over-year.
The May employment figures from ADP’s National Employment Report represent a sharp deceleration from recent months and suggest employers may be becoming more cautious about expanding their workforce. The data, based on payroll information from more than 25 million U.S. employees, provides an early indicator of broader employment trends ahead of the official government jobs report.
“After a strong start to the year, hiring is losing momentum,” said Dr. Nela Richardson, chief economist at ADP. “Pay growth, however, was little changed in May, holding at robust levels for both job-stayers and job-changers.”
Service sector drives modest gains
The service-providing sector accounted for nearly all job growth, adding 36,000 positions while goods-producing industries shed 2,000 jobs. Within services, leisure and hospitality led gains with 38,000 new positions, followed by financial activities with 20,000 additions.
Professional and business services, typically a bellwether for broader economic conditions, contracted by 17,000 jobs. Education and health services also declined, losing 13,000 positions during the month.
Manufacturing continued its recent struggles, cutting 3,000 jobs, while construction managed to add 6,000 positions despite broader weakness in goods-producing sectors.
Regional patterns show mixed results
Employment growth varied significantly across regions, with the West leading gains at 37,000 jobs, driven primarily by Mountain states adding 35,000 positions. The Midwest contributed 20,000 jobs, while the Northeast lost 19,000 positions and the South shed 5,000 jobs.
The mixed regional performance suggests economic conditions remain uneven across the country, with some areas showing resilience while others face headwinds.
Wage growth remains steady
Despite the hiring slowdown, wage pressures continued with job-stayers seeing annual pay increases of 4.5 percent. Workers who changed jobs fared better, earning 7.0 percent more than a year earlier, unchanged from April’s revised figure.
Pay growth varied by company size, with workers at the smallest firms (1-19 employees) seeing the most modest increases at 2.6 percent annually. Medium and large companies provided more substantial raises, with workers at firms with 50 or more employees seeing pay gains between 4.8 and 4.9 percent.
Financial activities workers received the highest pay increases among job-stayers at 5.2 percent, while information sector and professional services workers saw smaller gains at 4.2 percent each.
Establishment size matters for hiring
Medium-sized establishments with 50-249 employees drove most job creation, adding 51,000 positions. Small businesses with fewer than 50 employees reduced headcount by 13,000, while large companies with 500 or more employees cut 3,000 jobs.
The pattern suggests mid-sized companies remain more confident about business conditions and growth prospects compared to their smaller and larger counterparts.
The ADP report comes ahead of the official Bureau of Labor Statistics employment report and often provides insights into broader labor market trends. The significant deceleration in hiring could influence Federal Reserve policy discussions about interest rates and economic conditions.
