Private sector added 102,000 jobs in June and small businesses lost jobs, says ADP

Private sector employment growth slowed down in June, particularly among small businesses, according to payroll giant ADP, as employers added only 102,000 jobs in a further sign of a tightening labor market and the fading impact of the 2017 tax cuts.

Small businesses actually lost jobs, particularly at the smallest businesses with between one and 19 employees, which lost 37,000 jobs, though that was partially offset by a gain of 14,000 jobs at businesses with between 20 and 49 employees, for a total of 23,000 jobs lost at small businesses overall.

Midsized businesses with between 50 and 499 employees gained 60,000 jobs in June. Large businesses gained 65,000 jobs, including 30,000 at businesses with between 500 and 999 employees and 36,000 at businesses with 1,000 employees or more.

Goods-producing businesses lost a total of 15,000 jobs for the month, mainly from a loss of 18,000 jobs in the construction industry and 4,000 in the natural resources and mining sector, partially offset by a gain of 7,000 in the manufacturing sector.

Service-providing businesses added 117,000 jobs, including 32,000 in professional and business services such as accounting and tax preparation, along with 7,000 in financial activities. Franchise jobs increased by 13,500.

"Job growth started to show signs of a slowdown," said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, in a statement. "While large businesses continue to do well, small businesses are struggling as they compete with the ongoing tight labor market. The goods producing sector continues to show weakness. Among services, leisure and hospitality's weakness could be a reflection of consumer confidence."

Mark Zandi, chief economist of Moody's Analytics, which compiles the national employment report with ADP, noted that job growth has slowed sharply in recent months, as businesses have turned more cautious in their hiring. “Small businesses are the most nervous, especially in the construction sector and at bricks-and-mortar retailers," he stated.

The job numbers are a sign of potential trouble ahead. “I wouldn’t be sending off red flares yet; I would be sending off yellow flares,” Zandi said during a conference call with reporters Wednesday. “The dynamics that normally lead into economic recessions are coming into place, and that is a rise in unemployment. The underlying growth rate of the economy now is meaningfully and firmly below the economy’s potential rate of growth. If we stay here for very long, then unemployment will rise and that is the fodder for moving from expansion to recession.”