ADP Employment Up Sharply in May

• Initial claims for unemployment insurance fell for a fifth straight week at the end of May, to their lowest level since before the pandemic. Initial claims have been falling steadily since February.
• The total number of unemployment recipients fell in mid-May and has been declining steadily for the past few months.
• The ADP employment report indicated private-sector job gains of almost 1 million in May.
• PNC expects job growth of 525,000 in the government’s official May jobs report, to be released tomorrow. PNC expects a decline in the unemployment rate to 5.9%.

Initial claims for unemployment insurance fell to 385,000 in the week ending May 29, from 405,000 the previous week (revised down from 406,000). This is the first-time initial claims have been below 400,000 since mid-March of last year when the pandemic was first coming to the U.S. Initial claims have fallen for five straight weeks and in seven of the last eight weeks.

The four-week moving average of claims, which smooths out some of the volatility, also fell in the week ending May 29 to 428,000, down 30,500 from the previous week. This was also the lowest level for the four-week moving average since mid-March 2020. The four-week moving average has fallen in sixteen of the past seventeen weeks.

Initial claims for unemployment insurance have been falling steadily since February as the labor market recovery has picked up. Initial claims skyrocketed to more than 6 million per week in April 2020 as the pandemic hit the U.S. economy, then dropped through the late spring and summer of last year as businesses gradually reopened.

But claims then stabilized at around 800,000 per week from November 2020 to February 2021 as the pandemic re-intensified, states re-imposed restrictions on economic activity, and the labor market recovery stalled. But since then, with stimulus supporting consumer spending and vaccinations leading to a big drop in coronavirus cases, initial claims have fallen by around one-half as layoffs have declined. But initial claims are still around double the pre-pandemic level of 200,000 per week.

The number of initial claims under the Pandemic Unemployment Assistance program fell to 76,000 in the week ending May 29, down from 94,000 in the previous week (not seasonally adjusted). This was the lowest level of initial PUA claims since the program began about a year ago. Pandemic-related layoffs continue to fall.

The total number of people receiving unemployment insurance benefits across all programs, including pandemic-related programs, fell to 15.436 million in the week ending May 15, down from 15.802 million the prior week (not seasonally adjusted). The number of people receiving some form of unemployment has been steadily falling over the past few months and is down from a peak of more than 32 million in June 2020. However, the total number of beneficiaries is still far above the 2 million receiving some form of benefit before the pandemic.

The number of people receiving unemployment insurance benefits under regular state programs rose to 3.771 million in the week ending May 22, up from 3.602 million the previous week. The four-week moving average also rose slightly. Continuing claims have been somewhat below 4 million since March. This is down from a peak of 23 million in May 2020, but well above the pre-pandemic level of 1.7 million.

The weekly data from unemployment insurance claims continue to indicate an improving labor market. Initial claims have been falling steadily for the past four months, and total claims are also falling. Claims are falling both because layoffs have slowed and because unemployed workers are finding new jobs.

There is some concern that extra unemployment insurance benefits of $300 per week are leading some potential workers to turn down low-paying opportunities, leading to labor shortages in some industries and weighing on job growth. With many states dropping these benefits, citing the improved job market, that theory will be put to the test over the next couple of months. The extra benefits are set to expire nationally in September. Other reasons that the unemployed might not be taking available jobs include concern over contracting COVID and the need to care for children who are schooling at home because of the pandemic.

According to the ADP National Unemployment Report, based on data from the payroll-processing firm, private-sector employment rose by 978,000 in May. This included gains of 128,000 in goods-producing industries and 850,000 in services-providing industries.

PNC expects U.S. job growth of 525,000 in May when the Bureau of Labor Statistics releases the monthly employment report tomorrow (Friday, June 4). This includes private-sector job growth of 510,000. The April BLS jobs report was disappointing, with U.S. employment rising by only 266,000 over the month. But the steady decline in initial unemployment insurance claims over the past few months, other UI data, the ADP report, and hiring surveys all suggest that the April report understated the improvement in the labor market. A combination of supply-chain disruptions in some industries, seasonal adjustment issues, and labor supply issues weighed on job growth in April. The number is likely to be revised higher, and there is the potential for a big upside surprise in the May jobs report.

PNC expects the unemployment rate to decline to 5.9% in May, from 6.1% in April.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.