US private payrolls leap by 692,000 in June as hiring exceeds expectations

• The US private sector added 692,000 payrolls in June, ADP said in its monthly employment report.
• The reading beat the median estimate of 600,000 payrolls and marked a sixth straight month of job gains.
• The leisure and hospitality and the education and health services sectors added the most jobs, ADP said.

Hiring fared better than expected in the US private sector in June as continued reopening and a wave of demand led businesses to add employees.

Private payrolls increased by 692,000 last month, ADP said in its monthly employment report. Economists surveyed by Bloomberg held a median estimate of a 600,000 payroll gain. The May count was revised to 886,000 from an initial reading of 978,000.

The June climb marks a sixth consecutive month of payroll growth as more Americans return to work. Various factors have contributed to a labor shortage in the spring, including COVID-19 fears, childcare costs, and bolstered unemployment benefits. The Wednesday ADP print suggests those effects waned as unemployed people reentered the labor force.

The leisure and hospitality and the education and health services sectors added the most payrolls, with respective increases of 332,000 and 123,000, according to ADP. Sectors that shed the most payrolls during the pandemic have been the biggest gainers in recent months as economic restrictions have reversed. The information sector lost 4,000 jobs in June.

Hiring across different-sized businesses broadened after largely being led by small firms. Businesses with fewer than 50 employees added 215,000 jobs through June. Firms with 50 to 499 employees added 236,000 payrolls, and businesses with more than 500 employees added 240,000 jobs.

"The labor market recovery remains robust, with June closing out a strong second quarter of jobs growth," Nela Richardson, chief economist at ADP, said. "Service providers, the hardest hit sector, continue to do the heavy lifting, with leisure and hospitality posting the strongest gain as businesses begin to reopen to full capacity across the country."

Structural shifts and permanent scarring

While they were slowdown from May job gains, the June ADP reading sets the US up for strong growth through the second half of the year. Economists expect more Americans to return to work as vaccination continues, schools reopen, and the federal boost to unemployment insurance lapses. The mismatch between worker demand and labor supply should ease in the fall and help hiring accelerate further, Richardson said in a call with reporters.

But not all sectors will stage swift recoveries, and some risk never returning to pre-pandemic levels. Trends that were present before the pandemic and accelerated by the crisis will likely scar some industries, Richardson said. Structural shifts in how Americans spend could present permanent drags on a handful of sectors.

"The retail sector is still experiencing that underperformance, and it may not come back in the same way," Richardson said. "Even before the pandemic, there were reports of so many store closures as more and more sales shift toward e-commerce."

The office support sector faces a similar risk. There "won't be as much need" for such business as more firms transition to fully remote or hybrid work models, the chief economist said. Energy producers are also poised to see "pretty sluggish job gains going forward" once energy prices normalize, she added.

The ADP data precedes the government's own Friday payrolls report. Economists expect a gain of 706,000 non-farm payrolls in June, which would mark a sharp acceleration from the May reading and the strongest month of job growth since March. They also see the unemployment rate dipping to 5.6% from 5.8%.