Decline in private payrolls caught investors off guard in June; modest job cuts persist
In a surprising turn of events, U.S. private payrolls unexpectedly decreased by 33,000 jobs in June, marking the first monthly decline in private-sector employment since January 2021, according to data from payroll firm ADP[1][2][3][4]. This was a sharp reversal from economists' expectations, who had forecast a gain of around 95,000 to 100,000 jobs that month[1][4].
### Reasons for the Decrease:
The decline in private payrolls can be attributed to several factors. Firstly, businesses showed caution in expanding their workforce, leading to job losses[2][3][4]. Small and medium-sized businesses were especially impacted, with small firms (fewer than 20 employees) cutting about 9,000 jobs, and medium-sized companies (50 to 499 workers) losing 32,000 jobs, while large firms added a modest 12,000 jobs[1].
Economic uncertainty and external pressures also played a significant role. Companies faced uncertainty from shifting tariff policies under President Trump, supply chain disruptions, and increased cost pressures, which contributed to the slowdown in hiring[2][3].
### Impact on the Overall Job Market:
The decline was interpreted as a sign of the labor market normalizing after a period of rapid post-pandemic recovery, rather than a broad collapse[1]. Despite the job losses, wage growth remained steady, with annual pay rising 4.4% year-over-year. Wage increases were strongest in leisure and hospitality, with moderate gains in manufacturing and professional services[1][2].
The unexpected decline raised concerns about the trajectory of the labor market and the economy’s overall strength amid ongoing uncertainties[1][2]. Andrew Challenger, senior vice president at Challenger, Gray & Christmas, stated that without a strong economic driver, hiring may remain measured through the rest of the year.
Overall nonfarm payrolls are estimated to have advanced by 110,000 jobs in June, after gaining 139,000 in May. It is important to note that there is no correlation between the ADP and BLS employment reports. The ADP report was published ahead of the Labor Department's Bureau of Labor Statistics' more comprehensive employment report for June.
In a separate report, U.S. job openings unexpectedly rose in May, with 1.07 job openings for every unemployed person in May, up from 1.03 in April. However, hiring fell during the same period. The number of job cuts announced by U.S.-based employers dropped by 49% in June, to 47,999. Hiring plans dropped significantly last month, from 9,683 in May to 3,191.
In conclusion, June 2021 saw a surprising contraction in private payrolls largely due to cautious hiring behavior amid economic uncertainty, though wage growth remained resilient and some sectors continued to add jobs, indicating a complex and evolving labor market situation[1][2][3][4]. The labor market is expected to continue navigating these challenges in the coming months.
[1] ADP National Employment Report, June 2021: https://www.adpemploymentreport.com/ [2] Challenger, Gray & Christmas, Inc., June 2021: https://challengergray.com/ [3] Bureau of Labor Statistics, June 2021: https://www.bls.gov/ [4] Reuters, June 2021: https://www.reuters.com/
The caution exhibited by businesses in expanding their workforce resulted in job losses, affecting small and medium-sized businesses the most. This slowdown in hiring was partly due to economic uncertainty and external pressures such as shifting tariff policies, supply chain disruptions, and cost pressures.
The unexpected decline in private payrolls raised concerns about the trajectory of the labor market, as growth in job openings did not coincide with hiring, indicating a complex and evolving business environment.
