American employers created more than a quarter of a million jobs last month in a “rip-roaring” labour market as manufacturing conditions improved for the sixth month running, according to reports yesterday which sent stock markets to new highs.
Private employers hired significantly more workers in May than economists expected, a closely watched forecast suggested, raising hopes of a strong showing in today’s official jobs report. A separate reading of manufacturing conditions showed that new orders, exports and backlogs built up rapidly.
The three main US share indices closed at record highs. The Dow Jones rose 135.53 points to 21,144.18 while the broader S&P 500 was 0.6 per cent up at 2,430.06. The tech-heavy Nasdaq finished 0.7 per cent higher.
The positive readings also increased to a near certainty the raising of interest rates by the Federal Reserve the week after next.
Employers outside farms added 253,000 jobs to their workforces in May, ADP, the payrolls processing company, said. This would represent a gain of 42,000 jobs on April’s official reading of 211,000 and the fastest month-on-month growth since 2014.
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ADP’s estimate came before the official non-farm payroll figure, due today from the Department of Labor. Economists expect it to show that non-farm payrolls rose by 185,000 jobs and that unemployment stayed at 4.4 per cent. Mark Zandi, chief economist of Moody’s Analytics, said: “Job growth is rip-roaring. The current pace of job growth is nearly three times the rate necessary to absorb growth in the labour force. Increasingly, businesses’ number one challenge will be a shortage of labour.”
However, ADP’s estimate has been unreliable on occasion this year. The company predicted that non-farm payrolls grew by 255,000 jobs in March, before the official figure showed that only 77,000 jobs were added. Paul Ashworth, chief US economist at Capital Economics, said: “Given the ADP’s patchy record as a leading indicator of the official figures, we are happy to stick with our above-consensus 200,000 estimate for non-farm payrolls.”
A separate report showed new claims for unemployment benefits climbed to 248,000 last week from 235,000 the week before. Economists say a reading below 300,000 indicates strength in the labour market. The reading has been below that for 117 weeks.
Ian Shepherdson, chief US economist at Pantheon Macroeconomics, said: “Firms are reluctant to let people go because they fear that they won’t be able to rehire them later if needed, because the labour market is so tight.”
The Institute of Supply Management’s manufacturing index rose to 54.9 in May from 54.8 in April, marking the sixth straight month of expansion and beating economists’ expectations of a fall to 54.6.
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Michael Montgomery, US economist at IHS Markit, said: “We expect the good times to keep rolling.”