Labor Market Worries Rise on Weak Private Sector Job Growth

U.S. private-sector payroll growth slowed sharply in May coming in far below expectations and falling to the lowest level in eight months, a report by a payrolls processor showed Wednesday.

Robyn Beck | AFP | Getty Images Job seekers wait in line to have their résumés reviewed at the second annual Anaheim/Orange County Job Fair.

The ADP Employer Services report showed private employers added a scant 38,000 jobs last month, while April private payrolls were revised down to an increase of 177,000 from the previously reported 179,000. Economists surveyed by Reuters had forecast a gain of 175,000 jobs for May.

The report is jointly developed with Macroeconomic Advisers LLC.

"Obviously a much weaker-than-expected report, hinting that Friday's nonfarm data will also be weaker than expected," said Camilla Sutton, senior currency strategist at Scotia Capital in Toronto, referring to the U.S. Labor Department's monthly non-farm payrolls report due for Friday.

"We've seen general softening in U.S. data, and that's a concern about how the recovery is maintaining itself. Markets are starting to turn their attention to this."

U.S. stock index futures added to losses following the report, while the greenback extended losses against the yen and euro. Government debt prices extended earlier gains.

The ADP figures come ahead of the government's much more comprehensive labor market report Friday, which includes both public and private sector employment.

That report is expected to show a rise in overall nonfarm payrolls of 180,000 in May, slowing down from a gain of 244,000 the month before. Private payrolls are expected to come in at 205,000.

Economists often refer to the ADP report to fine-tune their expectations for the payrolls numbers, though it is not always accurate in predicting the outcome.

Layoffs Rise

Meanwhile, a separate report showed the number of planned layoffs at US firm rose modestly in May with government and non-profit sectors making up a large portion of the cuts, according to a report by outplacement firm Challenger, Gray & Christmas.

Employers announced 37,135 planned job cuts last month, up 1.8 percent from April and 4.3 percent more than in May 2010. Cuts in 2011 now total nearly 205,000, down by 21 percent on the first five months of 2010.

Government and non-profits continue to be the hardest hit, the report said, but government cutbacks are now impacting on the private sector as scale - backs on spending bleed into the aerospace and defense industry. This sector saw nearly 5,800 cuts in May, taking the total for the first five months to more than 17,500 – more than three times the number of cuts over the same period in 2010.

However, with 760,000 new workers joining private sector payrolls since February, the data shows that outside of government, employers are not anticipating a prolonged slowdown, John Challenger, CEO of Challenger, Gray & Christmas, said in a statement.

"Most employers realise that these types of ups and downs are typical during recoveries. So, it is unlikely that we will see a sudden resurgence in corporate downsizing in the months ahead, unless there is a major shock to the economy," Challenger said.

Cost-cutting, businesses closing and restructuring are the reason for nearly 70 percent of job cuts so far this year, the report said.

The financial sector has shed 11,413 jobs this year, 21 percent up on the first five months of 2010.

California has seen the largest number of cuts in the country so far this year, at 32,024, followed by 15,386 in the District of Colombia.