US private sector employment saw an unexpected drop of 33,000 jobs in June, according to the ADP National Employment Report. This marks the first decline since March 2023, surprising economists who had predicted a gain of around 95,000 to 100,000 jobs. The May figure was also revised downwards from an initial increase of 37,000 to 29,000.
The decline was primarily driven by losses in service-providing industries, with professional and business services shedding 56,000 jobs and education and health services losing 52,000. Financial activities also saw a decrease of 14,000 jobs. Conversely, some sectors experienced job growth, including leisure and hospitality (32,000 jobs), manufacturing (15,000 jobs), and construction (9,000 jobs). Small establishments, with fewer than 50 employees, were hit hardest, losing 47,000 jobs, while large establishments (500+ employees) added 30,000 jobs.
Despite the job losses, pay growth remained relatively stable. For individuals who stayed in their jobs, annual pay increased by 4.4% year-over-year in June, a slight decrease from 4.5% in May. For those who switched jobs, annual pay grew by 6.8%, down marginally from 7.0% in May. Nela Richardson, chief economist at ADP, noted that while layoffs continue to be rare, a hesitancy to hire and a reluctance to replace departing workers contributed to the job losses, but this slowdown has not yet significantly impacted pay growth.
This ADP report, developed with the Stanford Digital Economy Lab, is released ahead of the more comprehensive official employment report from the Labor Department's Bureau of Labor Statistics. However, economists often caution against using the ADP report as a direct predictor of the official figures due to its mixed track record. Nevertheless, the unexpected drop highlights growing economic uncertainty, although a separate report from Challenger, Gray & Christmas indicated a 49% drop in announced job cuts in June compared to the prior month, suggesting that widespread layoffs are not yet occurring.
