The U.S. economy saw softening private sector job creation last month, ADP reported Wednesday, adding to evidence of a slowing labor market heading into the summer months that could boost the prospects of an autumn Federal Reserve rate cut.
The payroll-processing group said around 152,000 jobs were created in the private sector last month, a decrease from the downwardly revised tally of 188,000 in April.
Economists had expected ADP's National Employment Report to show gains of around 173,000 as hiring slowed into the middle of the second quarter
Investors are also likely to focus on wage and earnings details provided in the ADP release, which showed a year-on-year increase of 5% for those remaining in their positions. Those seeking new roles saw pay gains of 7.8%, the lowest wage premium for changing jobs in more than three years.
Those figures could prove crucial over the coming months as the Federal Reserve looks to slow the pace of wage gains without a corresponding blunt to overall hiring as it continues to focus on bringing inflation back to its preferred 2% target.
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Earlier this week, data from the Bureau of Labor Statistics showed that April job openings fell to the lowest levels in three years with around 8.06 million positions were unfilled and the so-called quits rate held at pre-pandemic levels of around 2.1%.
“Job gains and pay growth are slowing going into the second half of the year,” said ADP's chief economist, Nela Richardson. “The labor market is solid, but we're monitoring notable pockets of weakness tied to both producers and consumers.”
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Stock futures pared some gains in the wake of the ADP release, with the S&P 500 called 14 points higher and the Nasdaq set for a 94-point advance at the start of trading. The Dow is priced for a 50-point gain.
Benchmark 10-year Treasury note yields held steady at 4.322% following the release, while 2-year notes were last pegged at 4.772% following their biggest two-day pullback of the year.
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The CME Group's FedWatch pegs the odds of a September rate cut at around 67%, up from less than 50% late last month, with the chances of a second cut before the end of the year beginning to mount.
The Labor Department will publish its benchmark nonfarm-payrolls report Friday. Investors are looking for a headline gain of around 175,000 hires in May with a headline unemployment rate around 3.8%, extending a record run of readings under 4% to more than two years.
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