Companies accelerated their hiring last month, adding a robust 253,000 net new jobs in a sign the labor market remains healthy and the economy is strengthening after a weak winter.
The May private-sector job creation figures reported Thursday by payroll firm Automatic Data Processing far exceeded analyst expectations and were well above the downwardly revised 174,000 net new positions added in April.
“Job growth is rip-roaring,” declared Mark Zandi, chief economist at Moody’s Analytics, which assists ADP in preparing its report.
He noted the job creation was nearly three times what was needed to absorb new entrants into the labor force and predicted that, “increasingly, businesses’ number one challenge will be a shortage of labor.”
If that’s correct, wages should start to rise faster as the economic recovery from the Great Recession hits its eighth anniversary this month.
The report is based on an analysis of ADP’s payroll data. It is not the official government estimate, which the Labor Department is to release on Friday, but is watched by economists for signs of what that data will show.
Analysts expect the Labor Department to report that the economy — private and public sectors — added 185,000 net new jobs last month. That would be a solid gain, but down from April’s 211,000 figure.
The unemployment rate is forecast to hold steady at 4.4%, the lowest in nearly a decade.
But ADP’s figures can vary widely from the government’s, as they did in March, when they reported much stronger growth, and in April, when they indicated weaker job creation.
ADP’s latest report showed a strong rebound in construction hiring. Companies in that sector increased their payrolls by 37,000 in May after shedding 7,000 net positions the previous month.
Trade, transportation and utilities added 58,000 net new jobs last month, up from just 9,000 in March. Education and health services companies boosted their payrolls by 54,000 after a 38,000 gain the previous month.
But the leisure and hospitality sector shed jobs for the first time in a year. Those companies reduced their payrolls by 11,000 last month after adding 41,000 net new jobs in April.
Federal Reserve monetary policymakers are watching the labor market closely to determine whether the economy is strong enough for another increase in a key short-term interest rate.
Fed officials have indicated they are on track for a small rate hike this month if the labor market continues to show solid growth.
The ADP report pointed in that direction as did the weekly jobless claims figures released Thursday by the Labor Department. Although initial claims for unemployment insurance increased last week to 248,000, the figure remains low and consistent with a healthy labor market.