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Private sector hiring unexpectedly contracted in June, payrolls processing firm ADP reported Wednesday, marking the first monthly decline in job growth since March 2023 and raising questions about the underlying strength of the U.S. economy.
In a sharp contrast to Wall Street expectations, private payrolls shrank by 33,000, well below the Dow Jones forecast of 100,000 job gains. ADP also revised May’s job gains downward, from 37,000 to just 29,000, adding to the gloomy picture.
“Though layoffs continue to be rare, a hesitancy to hire and a reluctance to replace departing workers led to job losses last month,” said Nela Richardson, ADP’s chief economist.
The unexpected decline in employment stands in stark contrast to the S&P 500, which closed out June at record highs, as investors seemingly shrugged off warning signs in the labor market.
Service Sector Hit Hardest
The services industry bore the brunt of the job losses. Professional and business services saw the steepest decline, shedding 56,000 positions, followed by health and education, which lost 52,000.
Other sectors hit include:
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Financial activities: -14,000 jobs
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Overall service sector: -66,000 jobs
Meanwhile, goods-producing sectors like manufacturing and mining added 32,000 jobs, helping to offset deeper losses.
Regional and Business Size Disparities
Regionally, the Midwest (-24,000) and West (-20,000) saw the biggest declines. The Northeast lost 3,000 jobs, while only the South posted net gains, with a modest 13,000-job increase.
By company size:
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Firms with over 500 employees added 30,000 jobs
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Firms with fewer than 20 employees lost 29,000 jobs
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Mid-size firms posted flat or modest declines
This pattern suggests smaller businesses are bearing the brunt of the slowdown, possibly due to tighter margins and limited access to capital.
Wage Growth Slows
Wage growth also softened in June, signaling reduced upward pressure on inflation:
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Job stayers: average annual pay growth slowed to 4.4% (from 4.5%)
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Job changers: wage growth dropped to 6.8% (from 7%)
While wages remain above pre-pandemic norms, the slowing trend may reflect weakened labor market confidence and lower demand for new hires.
What’s Next: Government Jobs Report and Market Reaction
The ADP report precedes the more closely watched government nonfarm payrolls report, due Thursday, which is expected to show a gain of 110,000 jobs and a rise in unemployment to 4.3%.
If the government data mirrors ADP’s weakness, it could prompt revisions to Federal Reserve expectations and spark market volatility after a strong second-quarter rally in equities.
“This string of labor data could mark a turning point,” said one Wall Street analyst. “If we’re seeing early signs of a jobs cooldown, it could pressure both rate policy and corporate earnings forecasts.”
Though the ADP report doesn’t always align with official Labor Department figures, the steep miss has caught economists’ attention, especially amid a shortened trading week for the July Fourth holiday.
For now, the labor market appears to be flashing early caution signals, even as investors cheer robust stock performance. The coming days may offer clarity on whether a hiring pause is taking hold — or if June’s numbers are a temporary blip in an otherwise resilient economy.
