US private sector adds more jobs than expected in May

Private sector employment in the US rose more than expected in May, according to data from ADP on Thursday.

Employment increased by 278,000 from April, versus expectations for a 170,000 jump.

Small businesses with fewer than 50 employees added 235,000 jobs, while medium businesses with between 50 and 499 employees added 140,000. Large businesses with more than 500 employees shed 106,000 jobs.

The service sector created 168,000 jobs, while the goods-producing sector saw a 110,000 increase.

The figures also showed that job changers saw a 12.1% increase in pay, down a full percentage point from April. For job stayers, the increase was 6.5% in May, down from 6.7%.

Nela Richardson, chief economist at ADP, said: "This is the second month we've seen a full percentage point decline in pay growth for job changers.

"Pay growth is slowing substantially, and wage-driven inflation may be less of a concern for the economy despite robust hiring."

Ian Shepherdson, chief economist at Pantheon Macroeconomics, noted that this is the second straight upside surprise from ADP, but said it does not necessarily signal a strong official number for tomorrow's non-farm payrolls.

"Since ADP introduced new methodology last August, its private payroll estimate has undershot the official numbers by a total of 319K, for reasons which are not clear. The strong-looking May number, then, could just represent a partial catch-up. But we could have said the same thing about the April reading - initially 296K, now 291K - which was then followed by an upside surprise in the payroll data.

"All we can say with confidence is that the Homebase numbers and the NFIB hiring intentions index both point to private payrolls nearer 100K than 200K, and we’ll also note that over the past couple of years, significant upside payroll surprises in payrolls have always been followed by much lower numbers. We’re sticking with our 125K estimate for headline May payrolls, but remember that the official margin of error in the print is about +/-130K, so deviations from consensus big enough to move markets often are not statistically significant."