WASHINGTON (Reuters) – U.S. private payrolls increased far less than expected in July as shortages of workers and raw materials constrained hiring in the manufacturing and construction industries. The fewest job gains in five months shown in the ADP National Employment Report on Wednesday suggested some downside risk to economists’ expectations for another month of […]
U.S. private payrolls growth slows as labor shortages linger
WASHINGTON (Reuters) – U.S. private payrolls increased far less than expected in July as shortages of workers and raw materials constrained hiring in the manufacturing and construction industries.
The fewest job gains in five months shown in the ADP National Employment Report on Wednesday suggested some downside risk to economists’ expectations for another month of solid payrolls growth when the government publishes its more comprehensive, and closely watched employment report for July on Friday.
“It suggests that labor shortages are still acute,” said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto. “The ADP is not always a good predictor of the official nonfarm payroll employment figures but, for what it’s worth, it suggests a clear downside risk to the consensus forecast.”
Private payrolls rose by 330,000 jobs last month, less than half of the 695,000 that had been anticipated by a Reuters survey of economists. Data for June was revised down to show 680,000 jobs added instead of the initially reported 692,000. The ADP report is jointly developed with Moody’s Analytics
Employers are struggling to find willing workers to fill a record 9.2 million job openings even as 9.5 million people are officially unemployed, a disconnect caused by the pandemic. Lack of affordable child care and fears of contracting the coronavirus have been blamed for keeping workers, mostly women, at home. There have also been pandemic-related retirements as well as career changes.
Scarce raw materials, especially in the automobile sector, are hampering production.
Though nearly half of the population has been fully vaccinated against COVID-19, boosting demand for workers in the labor-intensive services sector, new cases are surging across the country, driven by the Delta variant of the coronavirus.
The slowdown in hiring last month was across all business sizes and industries. Leisure and hospitality payrolls increased by 139,000 jobs, below the 330,000 average in the second quarter. Economists said this suggested the early terminations of benefits in at least 20 states led by Republican governors was not forcing low-wage earners to return to work.
Republicans and business groups have blamed enhanced unemployment benefits, including a $300 weekly check from the federal government, for the labor crunch.
Factories added only 8,000 jobs in July after averaging 35,000 last quarter. A global shortage of semiconductors is hampering production in the automobile sector. Hiring at construction sites stalled, with payrolls rising by just 1,000 jobs. Expensive lumber and scarce building materials are constraining homebuilding.
U.S. stocks opened lower following a record close for the S&P 500 index. The dollar was trading lower against a basket of currencies. U.S. Treasury prices were higher.
The ADP report has a poor track record predicting the private payrolls count in the department’s Bureau of Labor Statistics (BLS) employment report because of methodology differences.
According to a Reuters survey of economists, private payrolls likely increased by 750,000 jobs in July after rising 662,000 in June. With government employment expected to have increased by about 130,000, thanks to education-related hiring, that would lead to overall payrolls advancing by 880,000 jobs in July. The economy created 850,000 jobs in June.
July’s nonfarm payrolls estimate is highly uncertain, with labor market indicators mixed. Data from Homebase, a payroll scheduling and tracking company, showed its employees working index rising moderately in July compared to June.
Initial claims for state unemployment benefits were little changed between mid-June and mid-July, when the government conducted its survey for July’s employment report. But the number of people continuing to receive benefits after an initial week of aid fell considerably in that period.
In addition, a survey from the Institute for Supply Management on Monday showed its measure of manufacturing employment rebounded in July. The Conference Board’s labor market differential, derived from data on consumers’ views on whether jobs are plentiful or hard to get, in July hit its highest level since 2000.
Education payrolls typically fall by at least 1 million in July, before adjusting for seasonal fluctuations, as schools and universities close for summer. This year, however, many students are in summer school catching up after disruptions caused by the pandemic. Economists anticipate a small decline in education employment, which would boost the seasonally adjusted payrolls for the sector.
“We should also keep in mind that the ADP data on the private sector should not capture strength in education-related government employment that we expect to be evident in the BLS data,” said Daniel Silver, an economist at JPMorgan in New York.
“We are maintaining our forecast for the BLS report to show 900,000 jobs added in July, with 550,000 coming from the private sector.”
(Reporting By Lucia Mutikani; Editing by Andrea Ricci)