Despite Head Winds, Job Growth Appears to Be Holding Firm

Private-sector hiring appears to be holding up well despite sluggish economic growth and retrenchment in federal payrolls.

Judging from two private industry reports released Wednesday, it looks like Friday’s much-anticipated monthly jobs report will show continued moderate employment growth, thanks in good part to the housing recovery and an apparent pickup in hiring at smaller businesses.

ADP, the payroll processing firm, said its analysis of customers’ records suggest that private employers in the U.S. added a net 188,000 new jobs in June.

Separately, TrimTabs Investment Research, which reviews daily income-tax deposits to the U.S. Treasury, estimated that employment overall grew by 182,000 last month.

If the official job-growth number from the Labor Department comes close to these two, the unemployment rate would most likely drop a notch, to 7.5 percent, but could stay flat or even go up from May’s 7.6 percent rate if there is an unusual increase of new job-seekers.

In May, the economy added 175,000 net new jobs, more than enough to absorb the natural increase in the labor force. Yet as confidence in the economy has increased recently, more jobless people jumped back into the labor market in May. And when that happened, they were once again counted as officially unemployed, pushing up the jobless rate.

Mark Zandi, chief economist at Moody’s Analytics, who helped analyze the ADP report, said he was expecting weaker job-growth numbers from the ADP data, in part because of the persistent federal spending cuts under the sequester and the overall slow U.S. economy.

Payroll employment in the six months through May increased by an average of about 194,000 a month – a pace much faster than what one might expect, given the less-than-2-percent-growth in gross domestic product so far this year. Zandi said this mismatch may be partly explained by stronger consumer and business confidence from higher stock prices, and gains in the housing industry.

The ADP report Wednesday said construction businesses added a solid 21,000 jobs in June. “The fingerprints of the housing recovery are being seen across the economy,” Zandi said in a conference call with reporters.

Moreover, the Federal Reserve and other experts have gathered anecdotal evidence of businesses starting to hold back on hiring because of the requirement in the new health care law that employers with more than 50 full-time workers provide health insurance or pay a fine. Whatever the actual effect so far, the Obama administration’s announcement Tuesday that the law’s employer mandate will be delayed a full year until 2015 removes this restraint in the near term.

Still, economists remain cautious about Friday’s employment report. In recent months, ADP’s job-growth tallies have been below the official numbers, which may mean that June’s stronger-than-expected ADP figure may be inflated in a one-time catch-up. What’s more, changes in hiring patterns at small firms are notoriously difficult to capture accurately in a timely manner.

On average, analysts have projected job growth of about 150,000 in June, and the unemployment rate to have edged back down to 7.5 percent.