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PNC Senior Economist Abbey Omodunbi: ADP Jobs Report Shows Disappointing Job Growth in July

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  • Private-sector employment rose by a surprisingly weak 330,000 in July, according to a report based on data from payroll-processing firm ADP.
  • PNC expects a 700,000 increase in nonfarm payrolls when the BLS releases the government jobs report for July on Friday. PNC also expects the unemployment rate to fall to 5.7% in July from 5.9% in June.
  • Despite the disappointing report, the labor market recovery will gain steam over the rest of the year.

Private-sector employment increased by 330,000 in July, the smallest gain since February, following a downwardly revised 680,000 increase in June, according to the ADP National Employment Report. This is well below the second quarter average of around 733,000. The Bureau of Labor Statistics will release the government’s official jobs report for July on Friday, August 6.

Service-providing industries accounted for most of the growth in July, according to the ADP report, adding 318,000 jobs over the month. This included an increase in leisure/hospitality services employment of 139,000, below the year-to-date average of 205,100. This industry is recovering from the enormous job losses in March and April of last year as the pandemic slammed brakes on the U.S. economy. Education/health services added 64,000 jobs in July, while professional/business services added 54,000 jobs.

Goods-producing industries added 12,000 jobs in July. This included gains of 1,000 in construction after averaging better than 42,000 in the second quarter. 8,000 jobs were added in manufacturing. Small businesses (fewer than 50 employees) added 91,000 jobs in July. Medium-sized businesses (50 to 499 employees) added 132,000 jobs. Employment rose at the largest firms by 106,000 over the month.

More than 22 million jobs were lost in March and April of last year as the pandemic hit the U.S. economy. The labor market situation has significantly improved since April 2020, but employment is still down by 6.8 million from the pre-pandemic peak in February 2020. The disappointing jobs report comes amid labor supply challenges and the continued spread of the Delta variant. The number of job openings rose to a new record-high 9.2 million in May, according to the Job Openings and Labor Turnover Survey.

Many factors are likely driving worker shortages; concerns about catching the virus, childcare responsibilities, skills mismatches, and generous unemployment insurance benefits. Labor force participation should improve through the rest of the year as the economy approaches normalcy and the unemployment benefits end in September, allowing for stronger job growth in the second half of the year. More competition for workers, particularly in the leisure and hospitality sector, will support acceleration in wage growth, boosting household incomes and consumer spending. The disappointing ADP report adds some downside risk to PNC’s forecast of an increase of 700,000 nonfarm payrolls. The unemployment rate likely fell to 5.7% in July, from 5.9% in June and a peak of 14.8% in April 2020. Employment will fall to around 5% by the end of this year and near 4% by the end of next year.

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.

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