Jobless claims and ADP report allay fears of a job market slowdown

The economy added 172,000 jobs over the month according to ADP, and jobless claims dropped unexpectedly last week.The reports allay some fears that a disappointing May jobs report was the start of a steep downward trend.

After a lackluster May, the US employment picture looked a little brighter in June according to two new reports. 

Payroll processor ADP released its monthly National Employment Report on Thursday, stating that 172,000 jobs were created in the month of June -- a reassuring showing for many economists ahead of the Labor Department's monthly report for June, which will be released Friday.

Mark Zandi, chief economist at Moody’s Analytics, which helps ADP prepare the report, said in a statement that ADP's June report “suggests that last month’s very weak number was an outlier. Tomorrow’s [Labor Department] number should be close to 200,000 so it feels we’re back on track.”

May's jobs growth was the lowest recorded by the Labor Department since 2010.The economy added 38,000 jobs, which was lower than expected in part due to a Verizon worker strike involving 35,000 employees. Even accounting for the strike, the estimated number of jobs created would have been underwhelming. Although the unemployment rate also reached a low in May at 4.7 percent, the lowest number since before the Great Recession, the May jobs report worried analysts that job growth could be reaching a plateau.

The Monitor’s Olivia Lowenberg reported in June, “The Federal Reserve has been keeping an eye on several factors affecting the US economy and chose not to raise rates at its April meeting. Economists say the May jobs report makes the likelihood of a June or July rate hike even smaller.”

The Federal Reserve, likely influenced both by low job growth in May as well as Britain’s Brexit from the European Union, did not raise interest rates in June.

Of the jobs that were added to the labor force in June according to ADP, 95,000 were created by small businesses, 52,000 by midsize firms, and 25,000 by large companies. Large businesses tend to be influenced more by international events and uncertainties, and may have been hurt by Brexit. Mr. Zandi said in a statement, “Large multinationals are struggling a bit, and Brexit won't help, but small- and mid-sized companies continue to add strongly to payrolls.”

The service sector benefited the most in June. Within the transportation and utilities industry, 55,000 jobs were added and 51,000 were added in professional a business services industry. The construction industry saw a 5,000 job decrease. Manufacturing industry also saw a 21,000 job cut in June.

Along with an increase in jobs, Americans saw jobless claims decrease in the past week. According to the Labor Department, applications for unemployment benefits are down to 254,000 from 270,000 during the week ending July 2. Economists surveyed by the Wall Street Journal had expected jobless claims to level around 267,000. These numbers are consistent with a downward trend from the peak in jobless claims seen in 2009. For the past 70 consecutive weeks, jobless claims have stayed below 300,000, the longest such streak since 1973.

The combination of June job growth and low claims for unemployment benefits has reassured some of the current robustness of the US job market.

Stephen Stanley, chief economist at Amherst Pierpont Securities, told the Wall Street Journal, “I can’t think of a single labor market indicator that has been released over the past month that supports the abrupt slowdown in hiring signaled by the May payroll figures. I look for a return to normalcy tomorrow.”