Labor market cools! US June ADP private payrolls rose by only 98,000, falling short of expectations; healthcare and education alone are holding up the overall picture.

Signals of a cooling U.S. labor market are emerging! According to a CNBC report, the latest June ADP "Small Nonfarm" employment report shows that U.S. private companies added only 98k jobs, falling short of Wall Street expectations, and almost all of the new positions relied on healthcare and education services. This data indicates that the overall pace of corporate hiring is slowing, providing new macroeconomic considerations for the Federal Reserve's (Fed) future rate-cut decisions.
(Previous Context: U.S. job openings surged to 7.6 million in May, a two-year high! The job market remains extremely hot, ignoring the U.S.-Iran conflict)
(Background Supplement: New research from the Boston Fed: Oil prices won't kill U.S. employment; the probability of stagflation drops significantly but may be more persistent)

Table of Contents

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• Healthcare and Education Become the Only Engine, Small Businesses Contribute the Most
• Hiring Pace Slows, but Job Switchers' Salary Increase Rate Rises Against the Trend
• Entire Market Eyes Tomorrow's "Official Nonfarm Report"

As the market is highly focused on whether the U.S. economy faces recession risks, the latest employment data provides an answer leaning toward cooling. According to the latest National Employment Report (commonly known as the "Small Nonfarm") released today (July 1) by the ADP Research Institute, U.S. private sector employment increased by only 98,000 in June, significantly lower than May's 122k and falling short of the Dow Jones economist consensus expectation of 110k.

Healthcare and Education Become the Only Engine, Small Businesses Contribute the Most

Further breaking down the report reveals that the current employment growth in the U.S. has a serious "industry imbalance" phenomenon. In June, almost all new positions came from the service sector, with nearly half of the increase entirely contributed by a single sector.

| Industry and Enterprise Size | | --- | New / Lost Jobs | Macro Trend Interpretation | | --- | --- | --- | | Education & Health Services | +48,000 people | Continues as the main growth driver, accounting for nearly half of total new jobs. | | Leisure & Hospitality | +2,000 people | Growth remains sluggish, reflecting consumers cutting back on non-essential spending due to inflationary pressures. | | Natural Resources & Mining | –5,000 people | The only industry category with job losses this month. | | Small Enterprises (fewer than 50 people) | +53,000 people | Far exceeds medium (29k) and large (25k) enterprises, indicating that small businesses are still the main hiring force. |

Hiring Pace Slows, but Job Switchers' Salary Increase Rate Rises Against the Trend

Regarding this weak report, ADP Chief Economist Nela Richardson pointed out: "Current hiring pace is simultaneously reflecting both the supply and demand sides of the labor market. We know that people are now spending longer time looking for jobs, but some specific industries are also facing labor supply constraints. The overall effect of these two forces intersecting is a slowdown in job creation."

Notably, despite the overall cooling of the job market, wage inflation pressures have not fully eased. Data shows that the annual salary growth rate for "Stayers" who choose to remain with their current company held steady at 4.4%; however, for "Job changers" who switch jobs, the annual salary growth rate unexpectedly rose to 6.6%. This indicates that in specific specialized fields, companies are still willing to offer high salaries to compete for scarce talent.

Entire Market Eyes Tomorrow's "Official Nonfarm Report"

In macroeconomic analysis, the ADP report is often regarded as an important leading indicator for the official "Nonfarm Payrolls (NFP)" report from the Bureau of Labor Statistics (BLS), although ADP data has often underestimated official figures in recent years. The official nonfarm data is expected to be released tomorrow (July 2). Currently, the Wall Street consensus predicts June nonfarm payrolls will increase by 115,000, the unemployment rate will remain at 4.3%, and the average hourly earnings year-over-year rate will be 3.5%. If tomorrow's official data also confirms labor market weakness, it will significantly increase the Fed's leverage to start cutting rates in the second half of this year.