Private employment increased by only 38,000 in May, according to the latest monthly report from payroll giant ADP, reflecting a broader economic slowdown.

The ADP report found that small businesses with less than 50 employees added 27,000 jobs, while midsized businesses with between 50 and 499 employees gained 30,000 jobs, and large businesses with 500 employees or more lost 19,000 jobs.

Overall, 10,000 jobs were lost in the goods-producing sector, while 48,000 jobs were added in the service-providing sector.

Among small businesses, the goods-producing sector added 2,000 small business jobs, while the service-providing sector gained 25,000 small business jobs.

The April job numbers were revised down to an increase of 177,000 jobs from the previous figure of 179,000 jobs. Analysts polled by Reuters had expected a gain in May of about 175,000 jobs.

Joel Prakken, chairman of Macroeconomic Advisers, which compiles the reports with ADP, attributed the disappointing number to broader problems in the economy.

“There has been a very sharp deceleration in private employment,” he said in a conference call Wednesday with reporters. “Looking through the details, you can see there was a very sharp decline in employment in large establishments in the goods-producing sector, and manufacturing employment declined by 9,000. Manufacturing employment had risen six or seven months in a row. There has been an impact from the Japanese disaster, particularly in the vehicle industry.”

He noted that a number of automobile parts manufacturers and car paint companies had been located in the disaster zone, making it more difficult for consumers to buy some makes and colors. The effect of high gas prices has also constrained consumers. Those problems could reverse themselves later in the year as gas prices have already fallen in recent weeks, and Japanese parts makers are expected to ramp up production in the second half of the year. However, broader problems in the economy remain.

Prakken pointed out that gross domestic product grew only a small amount in the last few quarters.
“If GDP is growing at 2 and a quarter, there’s just not enough economic growth to generate robust growth in employment,” he said. “Perhaps the biggest surprise is that we’ve managed to eke out employment gains at all.”

Other factors pointing to slow growth include recent reports showing downward revisions in personal income levels, low numbers in durable goods shipments and housing starts, and housing prices still falling. He also noted the effect of uncertainty in resolving the budget deficit impasse in Washington, along with continuing unease in Europe about Greece’s debt crisis and the slowdown in growth in East Asia.

With the U.S. Bureau of Labor Statistics set to report the official jobs numbers on Friday, Prakken predicted that the BLS numbers will probably be on the low side of the consensus forecast.

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