Job growth in America is 'rip-roaring'

Myles Udland
Markets Reporter

The U.S. labor market continues to beat expectations.

In May, the U.S. private sector added 253,000 jobs, according to data from the ADP Research Institute. Economists had expected private payrolls to rise by 180,000 during the month.

“May proved to be a very strong month for job growth,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute.

“Professional and business services had the strongest monthly increase since 2014. This may be an indicator of broader strength in the workforce since these services are relied on by many industries.”

On Friday, the government will release its official jobs data for May, which is expected to show the economy added 180,000 nonfarm payrolls during the month.

Private payrolls growth remains strong in America. (Source: ADP)

“Job growth is rip-roaring,” said Mark Zandi, chief economist at Moody’s Analytics.

“The current pace of job growth is nearly three times the rate necessary to absorb growth in the labor force. Increasingly, businesses’ number one challenge will be a shortage of labor.”

Research from the San Francisco Fed published last year indicated that somewhere between 50,000 and 110,000 jobs per month would likely be needed to sustain labor market growth. ADP’s numbers have shown more than 200,000 private sector jobs were created in six of the last seven months.

On Wednesday, the Federal Reserve’s latest Beige Book report, a collection of economic anecdotes from businesses across the country, indicated that employers everywhere are under pressure to both hire workers and pay them more.

As economists in the Cleveland Fed’s district noted in that report, “Staffing firms noted an increase in the number of job openings and placements during the past two months, a situation which they attributed to an improving business climate.” These comments were echoed across the country.

According to ADP, the biggest gains in employment in May came from medium-sized businesses, with 50-499 employees, as 113,000 positions were added in this space. Small businesses added 83,000 jobs in May.

By sector, the services sector was a biggest gainer by far, adding 205,000 jobs during the month. Services account for the vast majority of GDP in the U.S. This was led by an 88,000 job gain in the professional and business services space, while healthcare and education services aded 54,000 jobs in May.

The services sector continues to dominate hiring in America. (Source: ADP)

In a note to clients following the report, Ian Shepherdson, an economist at Pantheon Macroeconomics said the number is “not an infallible guide to payrolls,” but added that this is “consistent with a strong report [on Friday].”

But with the official unemployment rate down at 4.4% — the lowest in a decade — and wages rising nicely but not accelerating the way some economists had expected, the question now is how many more workers the economy can absorb, and how many more are left to find jobs.

Or as Neil Dutta, an economist at Renaissance Macro, asked rhetorically on Thursday after ADP’s number: “Where are these people coming from?”

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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