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Private sector added 497K jobs in June

July 6, 2023
in Accounting
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Private sector added 497K jobs in June
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Private sector employment grew by 497,000 jobs in June while annual pay increased 6.4% year-over-year, according to data released Thursday by payroll processor ADP.

The company reported that job creation surged last month, especially in consumer-facing services such as leisure and hospitality, trade and transportation, and education and health services. However, the manufacturing sector, information service, financial activities, and professional and business services showed declines.

The service-providing sector added 373,000 jobs, including 232,000 jobs in leisure and hospitality, 90,000 jobs in the combined trade, transportation and utilities sector, and 74,000 jobs in education and health services. But the financial activities sector lost 16,000 jobs and the professional and business services sector, which includes accounting and tax preparation, subtracted 5,000 jobs.

“Financial services has been shedding jobs for seven straight months according to the private sector,” said ADP chief economist Nela Richardson during a conference call Thursday with reporters. “Manufacturing also shed jobs for four straight months, pointing to the goods sector, and then professional/business services shed jobs for five consecutive months, so weakness is showing up even in the service sector.”

An ADP sign at the TechFair LA job fair in Los Angeles.

Patrick T. Fallon/Bloomberg

The goods-producing sector added 124,000 jobs, including 97,000 jobs in construction and 69,000 in natural resources and mining, offset by a loss of 42,000 jobs in the manufacturing industry.

However, the report was mostly positive, with small establishments adding 299,000 jobs in June, including 162,000 in businesses with between one and 19 employees, and 137,000 in businesses with between 20 and 49 employees. Medium-size establishments added 183,000 jobs, including 171,000 in businesses with between 50 and 239 employees and 12,000 in companies with between 250 and 499 employees, offset by a loss of 8,000 jobs in large establishments with 500 employees or more.

“The larger the firms, the fewer the job gains, and we actually saw outright declines in firms with over 500 employees last month,” said Richardson. And that really points to what we’ve been saying all along that the bulk of hiring for larger firms happened in a six-month period between October 2021 and March 2022. Especially toward the end of last year, we saw large firms start to pull back on their hiring after hiring so aggressively during that six-month time period. And that is still showing up with the drop off in large firm hiring for two, two consecutive months, down 8,000 jobs in June, but not as big of a dropoff as we saw in the previous month.”

Pay gains slowed again in June, with people who stayed in their jobs seeing a year-over-year pay increase of 6.4%, down from 6.6% in May. For job changers, pay gains slowed for the 12th consecutive month, to 11.2%, the slowest pace of growth since October 2021. The median annual pay for job stayers was $57,396 in June, while for job changers, it was $47,040. 

“The pay growth for job changes has decelerated quickly,” said Richardson. “Over the last three months, annual pay growth has fallen almost three percentage points from March to June. if you look historically at the data, that is a really fast speed of decline. And then for job stayers, after moving basically sideways in the first quarter of 2023, we’re starting to see some cooldown there, going from 6.9% in March to 6.4% in June.”

She pointed out that the industries that had strong hiring last month also saw declining pay growth, including construction, education and health services, and trade, transportation and utilities. 

“The only place where we didn’t see substantial pay growth decline was in finance and information, which together shed 46,000 jobs last month,” said Richardson. 

Annual pay growth for workers in the 16- to 24-year-old cohort dropped from 15% to 14% last month, while for other age cohorts, ADP didn’t see a substantial pay growth change. 

“Younger workers, low-skilled workers and low-paid industries are really the ones where we’re seeing the deceleration,” said Richardson. “In total, we’re seeing a bit of a rebalance. Yes, the demand for employees is still there, but we’re seeing that matched by a restoration of prime age labor force participation. There’s a greater supply of workers to hire now, especially for small firms that have been challenged by competition. They don’t have to raise pay as much as they did last year to compete for these workers. That’s also a boon to hiring. The jobs market ended the first half of last year on a really high note, with strong hiring in people-to-people jobs. June is typically a strong month for hiring and last month was no exception. The job market is sending a very strong signal, but it’s tempered by three factors. The first factor that’s tempering this really strong number is that there are job declines in interest rate sensitive B2B industries. The second is the pullback in large firm hiring. And the third is a sustained, substantial slowdown in annual pay growth. The upshot is that the consumer-facing industries were in sync in June, but we see this as a cresting of a late cycle surge fed by consumer spending.”

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