ADP finds private sector added 177,000 jobs in June

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Private sector employers added 177,000 jobs in June, according to payroll giant ADP, as tax cuts and the booming economy continued to add jobs despite the threat of a looming trade war.

Small businesses added 29,000 jobs in June, including 16,000 at businesses with between one and 19 employees, and 13,000 at companies with between 20 and 49 employees. Midsized businesses with between 50 and 499 employees gained 80,000 jobs. Large businesses added 69,000 jobs, including approximately 22,000 at companies with between 500 and 999 employees, and over 46,000 at larger companies with 1,000 employees or more.

The service sector gained 148,000 jobs in June, including 33,000 in professional and business services, which includes accounting, tax preparation and other services. The goods-producing sector added 29,000 jobs. Franchises added 13,800 jobs in June.

“The labor market continues to march towards full employment,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, in a statement. “Health care led job growth once again and trade rebounded nicely.”

“The job market is as good as it gets,” said Mark Zandi, chief economist at Moody’s Analytics, which compiles the monthly national employment report with ADP, during a conference call with reporters Thursday. “ADP today indicates another monthly job reading of close to 200,000 jobs. That’s very robust job growth. The job growth is broad-based, across nearly every industry, across all company sizes, and all regions of the country. The pace of job growth is sustained. That means unemployment will continue to decline. Unemployment is obviously very low, a 3.8 percent unemployment rate. If the current job growth is sustained, and everything indicates it will be, given the fiscal stimulus this year and much of next, unemployment is headed into the low 3 percent range.”

The labor market is becoming increasingly tighter, with close to a record number of open positions, and wage growth is picking up slowly, but steadily. “Labor shortages are evident across nearly every industry,” said Zandi. “This is only going to get more difficult for businesses going forward as the unemployment rate continues to decline. Businesses are going to have a very difficult time holding onto workers. That’s clearly a growing concern and will be top of mind over the next couple of years.”

One threat to the job market is the developing tensions around trade. “Tariffs are going up in trade with China, the E.U., Canada, Mexico,” said Zandi. “If all of the tariff hikes on $100 billion of imported goods on a per annum basis that have been announced actually are implemented, and they’re now in the process of being implemented, that would reduce employment a year from now when the impact of this is at its peak by 150,000 to 200,000 jobs. In the grand scheme of things, that’s digestible. Instead of 200,000 per month, we have 185,000 per month, so it’s still enough for unemployment to continue to decline. However if all the tariffs that have been proposed are actually implemented, that comes out to $800 million. That’s about a third of all imported product, and that’s a bigger deal. That would cost the economy close to 750,000 to 800,000 jobs a year from now when the employment effects are at their peak. That’s more significant obviously. That’s 55,000 or 60,000 jobs per month.”

The U.S. economy could even potentially fall into a recession by the latter part of 2019 if the U.S. imposed tariff hikes of 25 percent on all trade with China and the Chinese retaliated in kind, Zandi warned. “One thing that’s keeping the economy moving forward despite the drag that would be created by all these trade tensions is all the fiscal stimulus,” said Zandi. “There’s massive deficit-financed tax cuts that are now really starting to push up growth, and very large increases in government spending, also deficit financed, that are going to hit mostly later this year and in full force in the first half of next year. That cushions the potential blow from the tariff hikes and the trade tensions, but on the other side weaker growth. The bottom line: The trade tensions are significant. They’re adding up and we need to watch them very carefully. They could have some significant fallout on the job market this year and change the contours of the economy’s trajectory as we move through this year into 2019. Still it’s hard not to feel pretty good about the labor market right now, which is very strong.”

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Payroll Small business Recruiting Mark Zandi ADP Moody's Analytics