Private sector’s June hiring surge fuels Fed hikes fears

Private payrolls increased more than expected in June, indicating that the labor market remains strong despite growing risks of a recession from higher interest rates.

Private payrolls jumped by 497,000 jobs last month, the ADP National Employment report showed on Thursday.

Data for May was revised lower to show 267,000 jobs added instead of 278,000 as previously reported.

Economists polled by Reuters had forecast private employment increasing 228,000.

The labor market has remained resilient despite 500 basis points worth of interest rate hikes from the Fed since March 2022, when the central bank embarked on its fastest monetary policy tightening campaign in more than 40 years to stamp out inflation.

A survey last month showed consumers’ perceptions of the labor market more upbeat in June relative to May.

The ADP report, jointly developed with the Stanford Digital Economy Lab, was published ahead of the Labor Department’s Bureau of Labor Statistics’ more comprehensive and closely watched employment report for June on Friday.

According to a Reuters survey of economists, private payrolls likely increased by 200,000 jobs in June. 

With further gains anticipated in government employment, mostly local government recruitment of teachers, total nonfarm payrolls are forecast to have risen by 225,000 jobs last month after surging 339,000 in May.

Meanwhile, the number of Americans filing new claims for unemployment benefits increased moderately last week, while private payrolls surged in June, suggesting that the labor market remained on solid ground despite growing risks of a recession.

The reports on Thursday, which also suggested that laid off workers were experiencing shorter spells of unemployment, made it more likely that the Federal Reserve would resume raising interest rates this month after pausing in June.

“An anticipated rise in layoffs on more restrictive monetary policy is not yet appearing in the data,” said Rubeela Farooqi, chief US economist at High Frequency Economics in White Plains, New York. “A tight labor market will keep the rate path on an upward trajectory, until policymakers see a material rebalancing in supply and demand.”

Initial claims for state unemployment benefits rose 12,000 to a seasonally adjusted 248,000 for the week ended July 1, the Labor Department said.

Data for the prior week was revised to show 3,000 fewer applications than previously reported.

Economists polled by Reuters had forecast 245,000 claims for the latest week.

Claims jumped to a 20-month high in the first three weeks of June to around 265,000 amid a broadening in layoffs beyond the technology sector and interest rate-sensitive industries like housing and finance.