The private sector added 201,000 jobs in May, a robust improvement over the previous month and a sign the economic recovery is back on track.
In its monthly jobs report, the Automatic Data Processing payroll firm said small businesses with 50 employees or less led the way, adding 122,000 of the new jobs, while firms larger than 1,000 employees contributed only 16,000. The job gains were overwhelmingly in the service sector, which accounted for 95% of the new jobs, ADP said.
The May report on nonfarm private sector payrolls increased from April's revised figures of 165,000 new jobs, and showed that recent indications of an economic contraction in the first quarter should be reversed in the second quarter ending this month.
"The job market posted a solid gain in May," said Mark Zandi, chief economist at Moody's analytics, which prepared the report in collaboration with ADP. "Employment growth remains near the average of the past couple of years. At the current pace of job growth, the economy will be back to full employment by this time next year."
The ADP findings are closely watched as a harbinger of the Labor Department's more comprehensive monthly jobs report, which is to be released Friday. But, ADP's job-growth figures for April were significantly lower than the Labor Department's, and economists generally caution against reading too much into the firm's data.
U.S. stock markets reacted favorably to the report. The blue chip Dow Jones Industrial Average rose 52.89, or 0.3%, to 18,064.83, in early trading, while the broader Standard and Poor's 500 index rose 4.22, or 0.2%, to 2113.82.
The jobs report comes five days after the Commerce Department reported that the U.S. economy had contracted in the first quarter for the second straight year, shrinking at an annualized rate of 0.7% at the end of March. Economists chalked up most of the slowdown to bad winter weather, which suppressed consumer demand and delayed housing projects, as well as other temporary phenomena, such as the West Coast ports dispute.
In fact, the May ADP report showed the construction sector added 27,000 jobs, up slightly from April and March, while trade, transportation and utilities, which would have been most affected by the port dispute, snapped backed smartly, contributing 56,000 of the new jobs.
Still, economists said the ADP report contains some worrisome signs. Manufacturing jobs fell by 5,000, the third straight monthly decline, showing the persistent strength of the dollar continues to pressure U.S. exports. What's more, the dramatic decline in oil prices, off more than 40% from a year ago, continues to hurt the energy sector, which has shed more than 40,000 jobs since peaking in November 2014, ADP said.
Wall Street analysts are poring over jobs figures as a predictor of when the Federal Reserve will raise interest rates, which have been near zero since the Great Recession. Russ Koesterich, Blackrock Inc.'s global chief investment strategist, said in a recent note that the first quarter's soft figures have given the Fed some leeway, but continued job growth adds to the pressure on policymakers to raise rates.
"Given that the United States is creating jobs at the fastest pace since the late 1990s," he wrote, "it is increasingly difficult to justify a 0% policy rate."