America Went on a Hiring Spree in June
The recession will have to wait.
The private sector put nearly 500,000 people onto payrolls in June, according to the calculations of payroll processor ADP. This was more than twice as many as Wall Street's forecasters had penciled in. The range of forecasts in Econoday's survey started at a low of 95,000 and topped out at 253,000. Which is to say, no one saw this coming.
ADP said that the leisure and hospitality sector added 232,000 workers to payrolls. That would be a good month for the entire economy. And keep in mind that these figures are supposedly seasonally adjusted, so they should not be affected by massive summer hiring at beaches, resorts, theme parks, and country clubs.
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We will learn on Friday whether ADP's measure is also reflected in the official Department of Labor count. For the last several months, however, ADP has actually come in below the Labor figure.
The Department of Labor said on Thursday that there were 1.335 million job openings in the leisure and hospitality sector at the end of May, bolstering the case for the ADP hiring estimate. Quits in the sector rose back above 800,000 for the first time since February. Across all sectors, quits rose above four million.
Not Just Labor Hoarding
While the notion that employers are "hoarding labor" has received a lot of attention, there clearly has been an increase in economic activity in the services sector. S&P Global's purchasing managers' index signaled expansion in June. The Institute for Supply Management's (ISM) services sector index registered its sixth straight month of expansion.
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Chris Williamson of S&P Global reports:
June saw encouraging resilience of the US services economy, which helped offset a renewed contraction of manufacturing output to ensure the overall pace of economic growth remained encouragingly solid. The surveys signal GDP growth of just under 2% for the second quarter as a whole, albeit with June seeing some loss of momentum.
Demand for services has remained surprisingly buoyant in the face of headwinds from the increased cost of living and higher interest rates, with spending still being supported by a post-pandemic tailwind for spending by consumers in particular. Higher interest rates and recent market gains are also boosting demand for some financial services.
The worry is that, although selling price inflation has cooled further, June saw increased cost growth in the service sector, which has been the main area of inflation concern in recent months. Higher wages in particular are driving costs up, and could keep selling price inflation stubbornly elevated in the months ahead.
Anthony Nieves of ISM said that not only is the services sector still growing, but growth is also accelerating:
There has been an uptick in the rate of growth for the services sector. This is due mostly to the increase in business activity, new orders and employment. Increased capacity, backlog reduction and continued improvements in logistics have impacted delivery times (resulting in a decrease in the Supplier Deliveries Index). The majority of respondents indicate that business conditions remain stable; however, they are cautious relative to inflation and the future economic outlook.
ISM said that 15 of the 18 industries they evaluated expanded in June, including real estate, rental and leasing, transportation and warehousing, construction, finance and insurance, retail trade, and health care and social assistance. The three industries that declined last month were mining, information, and agriculture, forestry, fishing and hunting.
Construction workers pour concrete in Los Angeles, California on January 18, 2022. (FREDERIC J. BROWN/AFP via Getty Images)
Construction Is Recovering
The ADP jobs report also said that construction added 97,000 jobs in June, a massive increase in payrolls. The Job Openings and Labor Turnover Survey (JOLTS) had construction vacancies rising to 366,000 from 347,000 at the end of April. This supports our thesis that the housing market has hit its bottom and begun to recover despite high-interest rates.
So long as the ADP numbers are more or less supported by the Labor Department's report on Friday, this is probably enough to guarantee a rate hike when the Fed meets later this month.
