Employment in the private sector increased by 201,000 jobs last month in another healthy sign of an improving economy, according to figures from payroll giant ADP.
Small businesses added 122,000 jobs in May, up from 97,000 in April, including 75,000 at companies with between one and 19 employees, and 47,000 at businesses with between 20 and 49 employees.
Midsize businesses with between 50 and 499 employees gained 65,000 jobs, on par with the number of hires in April.
However, large businesses with between 500 and 999 employees lost 3,000 jobs in May, after adding no jobs in April. Larger companies with 1,000 employees or more added 16,000 jobs, an improvement from 4,000 in April.
The goods-producing sector rose by 9,000 jobs in May, after adding only 1,000 in April. The construction industry had another good month in May, adding 27,000 jobs, up from 24,000 last month. However, manufacturing lost 5,000 jobs in May, after losing 8,000 in April.
Service-providing employment increased by 192,000 jobs in May, a robust rise from 164,000 in April. The professional and business services sector, which includes accounting and tax preparation along with other services, contributed 28,000 jobs in May, but that was down from 35,000 in April. The combined trade, transportation and utilities sector increased by 56,000 jobs in May, up from 41,000 in April. The financial activities sector added 12,000 new jobs in May, double the 6,000 added in April. In addition, franchise businesses added 14,700 jobs in May, but that was down from 15,600 in April.
Mark Zandi, chief economist at Moody’s Analytics, which compiles the monthly national employment report with ADP, pointed out that the May figures are consistent with the average monthly job growth rate of about 200,000 jobs that the economy has been adding this year.
“That pace is double the rate necessary to absorb the growth in the working age population,” he said in a conference call with reporters Wednesday. “If labor force participation just remains constant and the labor force grows at the rate of the working age population, the current rate of job growth will continue to push down unemployment and underemployment. And if we maintain the current rate of growth—which I think is likely—the economy will be back to most estimates of full employment, including my own, by this time next year. I think the economy is quickly closing in on full employment now.”
Zandi is also seeing an improvement in wage growth, which he acknowledged has been fairly pedestrian through most of the economic recovery. Both the U.S. Bureau of Labor Statistics’ Employment Cost Index and ADP’s Workforce Vitality Index data suggest a pickup in wage growth, he pointed out.
He expects to see more evidence of stronger wage growth as the year goes on, which will help support stronger consumer spending to further bolster the economy.
“People still don’t quite believe the economy is doing as well as it is, in part because their pay increases have been modest,” said Zandi. “I think as their pay increases start to pick up that will change their feelings and perceptions about the economy as we get into next year.”
The only blemishes he sees in the employment data are the collapse in oil prices and the surge in the value of the dollar, which are causing some job losses, particularly among large companies in the energy and manufacturing industries. However, he believes that growth in the gross domestic product is being underestimated and, as productivity, employment and wages all continue to grow, the Federal Reserve may decide to raise interest rates at its board meeting in September.
