US private payrolls rise broadly in May
WASHINGTON - U.S. private payrolls increased broadly in May, but economists cautioned against viewing the rise as a sign of a strengthening labor market, noting that other indicators continued to point to stabilizing conditions.
Private employment rose by 122,000 jobs last month after a downwardly revised 105,000 gain in April, the ADP national employment report showed on Wednesday. Economists polled by Reuters had forecast private employment increasing by 117,000 jobs after a previously reported 109,000 advance in April.
Last month’s increase in hiring was across businesses of all sizes, and was led by the education and health services sector, which added 57,000 jobs. Trade, transportation and utilities payrolls rose 36,000. But there were job losses in the information and natural resources and mining industries.
The ADP report is jointly developed with the Stanford Digital Economy Lab, and was published ahead of the Bureau of Labor Statistics’ more comprehensive and closely watched employment report for May on Friday. ADP has been a poor predictor of the BLS’s private payrolls estimate.
“The indicators with a better track record of forecasting payrolls - the hiring intentions indexes of the NFIB and regional Federal Reserve surveys, as well as the job availability differential of the Conference Board’s survey - have weakened in recent months,” said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. “Evidence that the labor market is regaining momentum remains unconvincing.”
The labor market has regained its footing after wobbling last year amid uncertainty stemming mostly from tariffs. While the U.S.-Israeli war with Iran has raised commodity prices and fanned inflation, layoffs have remained historically low, anchoring the labor market.
The Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS report, on Tuesday showed a surge in job openings in April, but they were concentrated in a single sector. Hiring decreased and layoffs fell, suggesting the solid increase in nonfarm payrolls in April was mostly due to lower layoffs.
Nonfarm payrolls likely increased by 85,000 jobs in May after rising 115,000 in April, a Reuters survey of economists predicted. The unemployment rate is forecast to remain steady at 4.3%.
Financial markets expect the Federal Reserve will keep its benchmark overnight interest rate in the 3.50%-3.75% range into next year, while monitoring the inflation fallout from the war.
Inflation increased at its fastest pace in three years in April, the government reported last week.
Services sector activity rises in May; supply constraints boost prices
U.S. services sector activity picked up in May as businesses preemptively placed orders and replenished inventories in anticipation of shortages and higher prices stemming from the war in the Middle East.
The Institute for Supply Management survey on Wednesday showed a measure of prices paid by services businesses increased to the highest level in nearly four years last month, with the cost of petroleum-related products reported to have risen, something that the ISM said respondents had not mentioned in April.
The three-month U.S.-backed war with Iran has severely disrupted the supply of commodities and raised prices of goods including energy, aluminum and fertilizers. Comments from businesses in the ISM survey mostly highlighted inflation and emerging supply constraints.
“The largest part of the economy remains healthy and continues to expand, even as inflation pressures are intensifying,” said Priscilla Thiagamoorthy, a senior economist at BMO Capital Markets. “That will likely keep Fed officials in wait-and-see mode.”
The ISM’s non-manufacturing purchasing managers index increased to 54.5 last month from 53.6 in April. Economists polled by Reuters had forecast the services PMI would be 53.8. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of U.S. economic activity.
The rise in the services PMI mirrors an increase in manufacturing activity reported by the ISM this week.
Seventeen industries reported growth last month, including wholesale trade, construction, public administration, accommodation and food services as well as utilities and retail trade. Only real estate, rental and leasing reported contraction.
Some providers of educational services said they were “starting to see increased supply constraints and associated price increases, especially for construction materials and computers like laptops and tablets.”
Accommodation and food services businesses said “suppliers across numerous industries are trying to pass price increases for fuel surcharges and increased input costs for resin-based products and the like,” adding “we expect significant cost increases to impact us by late second quarter and definitely in the third quarter.”
Wholesale trade businesses reported that “capital expenditure energy projects continue to be delayed or revamped based on macroeconomic factors.” They also noted that “data center power generation projects are driving demand and reducing available inventory across the piping market.”
The survey measure of new orders received by services businesses jumped to 57.3 from 53.5 in April. A gauge of services sector inventories soared to 62.5, the highest reading since May 2010, from 53.1 in the prior month. Business inventories have been drawn down for four straight quarters, the longest such stretch since the Great Recession.
Steve Miller, chair of the ISM services business survey committee, said the jump in inventories was not concerning, noting that the inventory sentiment index only edged up by 0.1 percentage point. It “indicates respondent confidence that business activity will remain strong amid higher costs,” he said.
Growth in backlog orders slowed, however, as did exports.
The survey’s measure of prices paid by businesses for inputs increased to 71.3, the highest level since August 2022, from 70.7 in the prior month, an indication that the oil price shock would continue to spill over to the services sector.
Inflation increased at its fastest pace in three years in April, the government reported last week. The Federal Reserve is expected to hike its benchmark overnight interest rate, currently in the 3.50%-3.75% range, at its meeting in December, according to CME Group’s FedWatch tool.
The survey’s measure of supplier deliveries eased to a still-high 55.2 from 56.8 in April. A reading above 50 indicates slower deliveries. The elevated reading likely contributed to the rise in the services PMI as the economy strengthens and demand increases. In this instance, however, strained supply chains are driving the rise in delivery times.
Computers, electronic components and memory components were among the goods that remained in short supply.
Factory orders post biggest gain in 11 months in April
New orders for U.S. factory goods posted their biggest increase in nearly a year in April amid strong demand for commercial aircraft and a range of other goods.
Factory orders surged 4.8%, the largest rise since May 2025, after an upwardly revised 1.8% advance in March, the Commerce Department’s Census Bureau said on Wednesday. Economists polled by Reuters had forecast orders increasing 4.6% after a previously reported 1.5% rise in March.
Orders increased 6.0% year-on-year in April. Manufacturing, which accounts for 9.4% of the economy, is being underpinned by an artificial intelligence spending boom, though the U.S.-Israeli war with Iran poses a downside risk.
The three-month conflict has severely disrupted the shipping of commodities and raised prices of goods like energy, aluminum and fertilizers. An Institute for Supply Management survey on Monday showed supplier delivery performance slowed for a sixth consecutive month in May, keeping prices for inputs elevated.
Commercial aircraft orders soared 165.9% after declining 23.0% in March. Boeing reported on its website that it had received 136 orders in April, most of them for more expensive models. That number compared to 33 orders in March.
Orders for primary metals increased 2.0%, while bookings for fabricated metal products jumped 3.5%. Orders for machinery rose 0.7%. Electrical equipment, appliances and components orders climbed 0.5%. There were also increases in orders for motor vehicle bodies, parts and trailers. But orders for computers and electronic products dropped 0.7%, with computers falling 2.5%.
The Census Bureau also reported that orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans on equipment, declined 1.0% in April instead of 1.1% as estimated last week. Shipments of these so-called core capital goods rose 0.4% as previously reported.
Copyright Reuters or USA Today Network via Reuters Connect.
This story was originally published June 3, 2026 at 10:46 AM.