Job Cuts Hit U.S. Firms for the First Time in Two Years, ADP Report Shows

• Private payrolls unexpectedly contracted by 33,000 jobs in June, per ADP, defying economists’ expectations of a 100,000-job gain, signaling potential economic weakness despite the S&P 500’s (SPX) 5.64% year-to-date rise.
• Service sectors, particularly professional/business services and health/education, drove job losses with declines of 56,000 and 52,000, respectively, while goods-producing roles added 32,000 jobs, led by manufacturing and mining.
• Wage growth slowed, with annual pay increases for job stayers dropping to 4.4% and job-hoppers to 6.8%, as small firms lost 29,000 jobs and large firms gained 30,000.

The U.S. labor market delivered an unexpected jolt in June, with private payrolls contracting by 33,000 jobs, according to ADP’s latest report, marking the first decline since March 2023. This downturn, which defied economists’ expectations of a 100,000-job gain as forecasted by Dow Jones, signals potential cracks in the economy’s resilience, even as the S&P 500 (SPX) continues its climb, gaining 5.64% year-to-date and touching record highs by month-end. The labor market’s uneven performance raises questions about the sustainability of the current economic expansion, particularly as investors remain buoyant amid lingering concerns over trade policies and inflationary pressures.

The ADP data revealed stark disparities across sectors and regions. Service-oriented roles bore the brunt of the losses, with professional and business services shedding 56,000 jobs and health and education roles declining by 52,000. Financial activities also weakened, losing 14,000 positions. In contrast, goods-producing sectors offered a counterbalance, adding 32,000 jobs, driven by gains in manufacturing and mining. This divergence underscores a broader trend: while service industries grapple with hiring hesitancy, goods-producing sectors are finding firmer footing, possibly buoyed by domestic demand or shifts in global supply chains.

Regionally, the Midwest and Western U.S. experienced the sharpest declines, with payrolls dropping by 24,000 and 20,000, respectively. The Northeast saw a modest loss of 3,000 jobs, while the South emerged as the only region with net job growth, adding 13,000 positions. Firm size also played a role in the uneven landscape. Small businesses, particularly those with fewer than 20 employees, accounted for 29,000 lost jobs, reflecting their vulnerability to economic headwinds. Conversely, large firms with over 500 employees led payroll growth, adding 30,000 jobs, suggesting greater resilience among bigger players.

Wage growth, a critical indicator of labor market health, showed signs of cooling. Annual pay increases for workers staying in their roles dipped to 4.4% from 4.5%, while job-hoppers saw their wage gains slide to 6.8% from 7%. This moderation in income growth could temper consumer spending, a key driver of economic activity, especially as inflationary pressures persist.

The ADP report’s reliability as a predictor of broader labor trends remains questionable, often diverging from the government’s nonfarm payrolls data, which carries greater weight among investors. Economists anticipate the upcoming nonfarm payrolls report, due Thursday, will show a robust 110,000 job additions for June, though some may temper their forecasts following ADP’s weak showing. The unemployment rate is expected to edge up to 4.3% from 4.2%, potentially reflecting a loosening labor market. Weekly jobless claims, also due Thursday, are projected at 240,000, offering further insight into labor market dynamics during a holiday-shortened trading week, with markets closing early Thursday and remaining closed Friday for Independence Day.

Despite the labor market’s mixed signals, the S&P 500’s strong performance reflects investor optimism, fueled by a second-quarter rebound after tariff-related fears under President Donald Trump’s policies nearly tipped the index into bear market territory. The interplay between labor market softness and equity market strength highlights a disconnect that may warrant closer scrutiny. As Nela Richardson, ADP’s chief economist, noted, “Though layoffs continue to be rare, a hesitancy to hire and a reluctance to replace departing workers led to job losses last month.” This caution among employers could foreshadow broader economic challenges, particularly if hiring momentum continues to falter. With key labor data looming, the coming days will be critical for assessing whether June’s contraction is a blip or a harbinger of deeper economic shifts.

WallStreetPit does not provide investment advice. All rights reserved.

• Bulenox: Get 91% OFF ... Use Discount Code: ZYY8U
• Risk Our Money Not Yours | Get 50% to 90% OFF ... Use Discount Code: MMBVBKSM
• Looking for the Best Cash Back? You’ve Found It