Private payrolls rose more than expected last month, with some of the industries hardest-hit by social distancing requirements making strides to recover jobs as the economy emerges from the pandemic.
U.S. private employers added back 978,000 payrolls last month, ADP said in its closely watched monthly jobs report on Thursday. This followed a downwardly revised rise of 654,000 in April. Consensus economists were looking for private payrolls to increase by 650,000 in May, according to Bloomberg data.
By sector, service-providing employers again added the most jobs by far last month at a net 850,000. Leisure and hospitality jobs increased by 440,000, and education and health services employment rose by 139,000 in May. Trade, transportation and utilities jobs also increased by a strong 118,000. Information industry employers were the only ones to shed jobs on net last month, with these ticking down by 3,000.
In the goods-producing sector, overall private payrolls rose by 128,000, led by construction with an increase of 65,000. Manufacturing jobs increased by 52,000, while mining added back 11,000 positions.
Thursday's report represented a fifth straight month of net private payroll gains, with vaccinations, eased social distancing and mask mandates and warmer weather each contributing to more consumer mobility and demand across the economy. This has in turn lifted economic activity and spurred a wave of job openings as employers look to meet increased demand.
In fact, one of the biggest issues facing the economy during the recovery has been an undersupply of workers available to fill open positions. Economists have attributed this to lingering concerns over contracting COVID-19, difficulty finding childcare and enhanced, and crisis-era federal unemployment benefits, which may be providing a disincentive for some to find work.
But regardless of cause, the labor shortages have already begun to cap growth as the recovery takes place. The Institute for Supply Management's May manufacturing index released earlier this week showed that employment trends were slowing in the goods-producing sector, and that "difficulties in filling open positions continue to be issues that limit manufacturing-growth potential."
Still, the economy has added back jobs in every month this year, and overall jobs data has pointed to continuous improvement. ADP's private payrolls report also comes a day before the U.S. Labor Department's "official" April jobs report on Friday, which will offer a more comprehensive look at the state of the labor market recovery. The ADP report has typically been an unreliable indicator of the results in the government report due to differences in survey methodology, with ADP counting individuals on active payrolls during the survey period as employed, whereas the Labor Department includes those receiving paychecks during the survey period.
Last month, the Labor Department reported that 218,000 private payrolls came back in March, whereas ADP reported 742,000 at the time, before revisions. But earlier on in the pandemic, ADP's report typically underestimated the Labor Department's eventual print on payroll gains.
"Though the April ADP survey overestimated BLS [the Bureau of Labor Statistics'] private payrolls by 524K, Thursday's release will likely anchor expectations going into Friday's report," Brett Ryan, senior U.S. economist for Deutsche Bank, wrote in a recent note.
Consensus economists are looking for the Labor Department's report this Friday to show the U.S. economy added back 653,000 non-farm payrolls in April, with 600,000 of these comprising private payrolls. The unemployment rate is expected to fall to 5.9% from 6.1%, reaching the lowest level since the start of the pandemic in the U.S.
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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