US private payrolls add 98,000 in June, missing estimates as hiring cools

US companies added fewer workers than expected in June, extending a pattern of cooling labor demand that bolsters the case for Federal Reserve rate cuts.

US private employers added 98,000 workers in June, the weakest monthly gain in more than a year and below all economist estimates, as hiring slowed across service industries.

"The pace of hiring is telling a story of both supply and demand," said Dr. Nela Richardson, chief economist at ADP. "We know it's taking people longer to find work, but there also are signs of labor supply constraints in certain industries."

Education and health services led with 48,000 new positions, followed by trade, transportation and utilities at 15,000 and financial activities at 14,000. Leisure and hospitality added just 2,000 jobs, marking a sixth consecutive month of weak hiring in the sector. Goods-producing industries contributed 2,000 jobs, with manufacturing adding 5,000 and construction 2,000, while natural resources and mining shed 5,000.

The below-consensus reading reinforces expectations that the labor market is cooling after a period of resilience, giving the Federal Reserve more room to begin cutting interest rates. Traders will now focus on Friday's nonfarm payrolls report from the Bureau of Labor Statistics for further confirmation of the trend.

Pay Growth Holds Steady as Job-Changers See a Premium

Median annual pay for workers who stayed in their jobs rose 4.4 percent from a year earlier, unchanged from the prior month. Job-changers saw a sharper acceleration, with pay gains jumping to 6.6 percent, up from 5.9 percent in May, ADP data show. The widening gap suggests workers are still finding wage premiums by switching employers, even as overall hiring slows.

Financial activities posted the strongest pay growth among stayers at 5.1 percent, followed by manufacturing at 4.9 percent and construction at 4.6 percent. Information workers saw the smallest gains at 4 percent.

Small Businesses Drive Hiring as Large Firms Pull Back

Establishments with fewer than 50 employees added 53,000 jobs, accounting for more than half of total private-sector hiring. Medium-sized firms with 50 to 499 workers contributed 29,000 positions, while large companies with 500 or more employees added 25,000.

By region, the South led with 37,000 new jobs, driven by the West South Central division including Texas. The Northeast added 33,000, the Midwest 21,000 and the West 17,000.

The ADP report, which has a mixed track record as a predictor of the government's monthly jobs data, adds to evidence that the labor market is gradually losing momentum after a period of surprising strength. Nonfarm payrolls averaged 246,000 per month over the past three months, according to the Bureau of Labor Statistics, well above the roughly 100,000 needed to keep the unemployment rate stable. If Friday's data confirm the slowdown, money markets could increase bets on a September rate cut.

This article is for informational purposes only and does not constitute investment advice.