Dismal ADP Employment Numbers Revive Fears of a Slowing U.S. Economy

U.S. private-sector hiring slowed to a crawl in May, raising alarm bells on an economic recovery that appears to have decelerated sharply in the second quarter.

Hiring Slows to a Crawl in May

U.S. employers added just 27,000 workers to payrolls last month, the ADP Research Institute reported Wednesday. The reading was well below the consensus forecast calling for 185,000 new payrolls. It was also well below April’s downwardly revised gain of 271,000.

The goods-producing sector, which accounts for construction, manufacturing and natural resource extraction, shed 43,000 jobs in May. Service-producing industries added 71,000 positions.

The report suggested that the U.S. economy was suffering from labor shortages, which could place downward pressure on hiring in the short term. Nevertheless, traders are likely to view the data as a sign that the economy was beginning to cool.

“Job growth is moderating,” Moody’s Analytics chief economist Mark Zandi statement in a statement. “Labor shortages are impeding job growth, particularly at small companies, and layoffs at brick-and-mortar retailers are hurting.”

ADP data are released 48 hours in advance of the official nonfarm payrolls report. The official government report on Friday is expected to show the creation of 185,000 nonfarm jobs in May.

Stocks Unaffected, but Gold Surges

The ADP report stoked a buying frenzy in the gold market, as traders snatched up bullion in large numbers.

Gold for August settlement peaked at $1,348.90 a troy ounce on Wednesday, having gained about 1.5%. With the gain, gold is fast approaching its yearly high.

Gold Futures
Gold futures rocket higher on Wednesday following disappointing ADP employment report. | Source: Barchart.com

Silver futures also rallied sharply on Wednesday, climbing 1.5% to $14.99 a troy ounce on the Comex division of the New York Mercantile Exchange.

Precious metals rose as the dollar fell. The U.S. dollar index, which tracks the greenback’s performance against a basket of six peers, dropped 0.2% to 96.84.

U.S. stock futures careened lower in the pre-market session but have quickly recovered. Wall Street looks poised to extend Tuesday’s corrective rally that saw the Dow Jones Industrial Average climb more than 500 points.

But the rally on Tuesday wasn’t all that it was cracked up to be. The stock surge was mostly caused by dovish cues from Federal Reserve Chairman Jerome Powell, who indicated a renewed willingness to cut interest rates if trade negotiations with China fall through.

“We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2% objective,” Powell told a monetary policy conference in Chicago on Friday.

Traders took this to mean that a rate cut could be imminent. At the very least, it all but guarantees that the Fed’s next move will be to lower rates instead of raise them.

That view is captured by Fed Fund futures prices, a venue that lets traders bet on the future of monetary policy. At last check, Fed Fund futures prices showed a 69.2% likelihood that the Fed cuts rates in July.

Featured image courtesy of Shutterstock. Chart via Barchart.com. 

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi