U.S. private payrolls rise by 278,000 in May, topping estimates

Investing.com -- U.S. private payrolls increased by far more than expected in May, but fell compared to the previous month, in a sign of lingering labor market strength despite elevated interest rates.

Private employment rose by 278,000 during the month, according to the ADP National Employment report on Thursday, topping economists' estimates of 170,000. The reading was lower than a downwardly revised level of 291,000 in April.

Job gains were "fragmented," the report noted, led by the leisure and hospitality sector, as well as natural resources and construction. These helped offset losses in manufacturing and finance roles.

Meanwhile, pay growth saw a broad-based slowdown, ADP said. Compensation for workers who changed jobs rose by 12.1%, down a full percentage point on a monthly basis. For those who stayed in their current roles, the uptick was 6.5%, decelerating from 6.7%.

“Pay growth is slowing substantially, and wage-driven inflation may be less of a concern for the economy despite robust hiring,” said ADP chief economist Nela Richardson in a statement.

Although not directly correlated, the ADP figures provide a prologue to the much-anticipated release of the Labor Department's more comprehensive nonfarm payrolls report, which is due out on Friday. Economists predict that the world's biggest economy added 180,000 jobs last month, dropping from 253,000 in April.

Policymakers at the Federal Reserve have said they will be keeping a close eye on the employment readings to see if their over year-long policy tightening cycle is cooling the labor market. In theory, this softening could contribute to their ultimate goal of slowing inflation.