A Deeper Look at How Private Payrolls Missed Wall Street Expectations

If Wall Street was Vegas, the under-over line to watch would be the unemployment numbers. In case you’ve been living in a cave, every economics “expert” and talking head has preached the mantra “The US economy will not truly improve until job growth returns.”

Well, this morning the ADP National Employment Report showed a continuation of increased private payrolls: private-sector employment increased by 38,000 from April to May on a seasonally adjusted basis. For whatever it’s worth, Wall Street economists were expecting an increase of 170,000 (Briefing). However, April’s numbers were revised down to  177,000 from the previously reported of 179,000.

This month’s ADP National Employment Report suggests that employment growth slowed sharply in May. Employment in the nonfarm private-business sector rose 38,000 from April to May on a seasonally adjusted basis. A deceleration in employment, while disappointing, is not entirely s urprising.  In the first quarter, GDP grew at only a 1.8% rate and only about 2¼% over the last four quarters.  This is below most economists’ estimate of the economy’s potential growth rate and normally would be associated with very weak growth of employment.

May’s ADP Report estimates employment in the service-providing sector rose by 48,000, marking 17 consecutive months of employment gains while employment in the goods-producing sector fell 10,000 following six months of increases. Manufacturing employment (NYSE:XLI) fell 9,000 in May following seven consecutive monthly gains.

Employment among large businesses, defined as those with 500 or more workers, decreased by  19,000, while employment among medium-size businesses, defined as those with between 50 and 499 workers, increased by 30,000.  Employment for small businesses, defined as those with fewer than 50 workers, rose 27,000 in May.

Employment in the construction industry (NYSE:XHB) dropped 8,000 in May, completely reversing April’s increase.  The total decrease in construction employment since its peak in January 2007 is 2,124,000.

Employment in the financial services sector (NYSE:XLF) decreased 6,000 in May

Stay tuned for Wall St. Cheat Sheet’s coverage of the BLS Unemployment data this Friday.

More from The Cheat Sheet