ADP: “Wage Growth Is Accelerating” as “Labor Market Continues to Tighten”

The ADP National Employment Report finds the U.S. private sector added 178,000 jobs in May, but businesses are struggling to fill a record number of open positions. The headline number is slightly lower than the 187,000 forecast, but labor demand is pushing wages higher.

“The hot job market has cooled slightly as the labor market continues to tighten,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Healthcare and professional services remain a model of consistency and continue to serve as the main drivers of growth in the services sector and the broader labor market as well.”

The gain this month follows a larger number (204,000) of private sector jobs created in April. That compared to the 168,000 in the government’s data for total non-farm payrolls. ADP has been running far stronger than the government data.

The higher-paying Goods-producing sector added a solid 64,000 private sector jobs in May. With 39,000 new jobs, construction led the way followed by manufacturing (+14,000) and natural resources and mining (+11,000).

“Job growth is strong, but slowing, as businesses are unable to fill a record number of open positions,” Mark Zandi, chief economist of Moody’s Analytics, said. “Wage growth is accelerating in response, most notably for young, new entrants and those changing jobs. Finding workers is increasingly becoming businesses number one problem.”

The service-providing sector added 114,000 jobs in May, led by professional/business services at 61,000.

Small business with up to 49 employees added 38,000 jobs; medium-sized businesses with 50 to 499 employees added 84,000; and, large businesses with 500+ employees added 59,000.

The ADP National Employment report, which is derived from actual payroll data, measures the change in total non-farm private sector employment each month on a seasonally-adjusted basis. It precedes the government jobs report known as the Employment Situation.

Conducted by the Labor Department (DOL) via the Bureau of Labor Statistics (BLS), the monthly jobs report tallies both the private and public sectors.

However, it is derived from responses collected in a household survey, not hard data. The median economic forecast is also calling for 190,000 jobs.