ADP Automatic Data Processing Inc

By Lisa Beilfuss 

Private payrolls in June rose at the best clip in three months, suggesting many U.S. firms continue to create jobs at a healthy pace and alleviating some concerns over May's marked slowdown.

Private firms across the U.S. added 172,000 workers to their ranks last month, according to payroll processor Automatic Data Processing Inc. and forecasting firm Moody's Analytics. Economists surveyed by The Wall Street Journal expected an increase of 151,000.

May's gain, initially reported at 173,000, was revised down slightly to 168,000.

"Job growth revived last month from its spring slump," said Mark Zandi, chief economist of Moody's Analytics. The employment market remains healthy outside of the struggling energy and manufacturing sectors, "and Brexit won't help," but small- and mid-sized companies are hiring at a solid pace, he said.

U.S. job growth has slowed in recent months, with the government's May employment report showing considerably weaker growth in payrolls than had been expected and previous months' gains revised down, the Federal Reserve said in its June meeting minutes released Wednesday. While a strike at Verizon Communications Inc. dragged down May's payroll figure, weakness was broad-based with construction companies, manufacturers and miners together cutting 36,000 jobs, temporary head counts dropping by 21,000 and service providers significantly slowing hiring.

ADP's May report didn't similarly reflect significantly softer hiring, partly because of its methodology. The report is based on data collected from ADP clients in addition to lagged government figures -- it doesn't aim to replicate the nonfarm payrolls survey -- and it didn't include the Verizon strike or adjust for it. Some other job market indicators, such as the number of Americans filing for unemployment benefits and those quitting their jobs, have continued to suggest a healthy labor market. Separately Thursday morning, the Labor Department said jobless claims dropped last week.

Service providers and small businesses continued to drive the June payroll gains, according to ADP, offsetting intensifying job losses across the manufacturing sector.

Service-sector firms, home to most U.S. jobs and reflective of domestic demand, grew payrolls by 208,000 last month, up 35,000 from May. Meanwhile, factory head counts fell 21,000 -- marking the fifth straight month of declining jobs in the sector and the biggest monthly decline since early 2010. While manufacturing conditions have stabilized in recent months, headwinds remain and factory owners remain reluctant to hire. Construction jobs, meanwhile, fell in June for the first time in 5 1/2 years.

America's smallest companies -- those with fewer than 50 employees -- picked up their pace of hiring last month to 95,000 workers, up from 84,000 in May and far outpacing payroll gains at bigger businesses that continue to grapple with weaker international demand, uncertainty over the Brexit fallout and a strong U.S. dollar that hurts exports.

The June ADP report comes a day before the Bureau of Labor Statistic's employment situation report. Economists polled by The Wall Street Journal expect nonfarm payrolls to have risen 165,000 last month, up from 38,000 in May. The unemployment rate is expected to tick up to 4.8% from 4.7%, where it unexpectedly fell because of sharp labor market shrinkage.

Many economists say the better-than-expected ADP result doesn't affect their nonfarm payroll forecasts for tomorrow's report, pointing to frequent divergence between the two numbers. "We've seen recent ADP overshoots of 148,000 in May, 26,000 in April and 33,000 in March, after undershoots of as much as 122,000 in four of the prior five months," said Michael Englund, chief economist at Action Economics.

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com

(END) Dow Jones Newswires

July 07, 2016 10:04 ET (14:04 GMT)

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