ADP Job Growth Soars By 500K, Jobless Claims Tick Higher: Traders Raise Fed Hike Bets

The U.S. job market has been tight for a very long time and continues to show no indications of cooling down.

In June, U.S. private employers added 497,000 jobs, a sharp increase from the revised lower 267,000 jobs added in May and massively beating expectations of 228,000, according to the ADP National Employment Report released Thursday.

The Department of Labor reported Thursday that weekly jobless claims rose from 239,000 to 248,000, slightly surpassing expectations of 245,000.

In the latest June FOMC Minutes, the Federal Reserve highlighted that while job market conditions remain tight, there were some signs of supply and demand in the labor market moving toward a better balance.

These new labor market data points arrive just one day before the highly anticipated non-farm payrolls report, which is set to be released Friday morning.

June’s ADP Employment Report: What You Need To Know

U.S. private businesses added 497,000 payrolls last month, up from 267,000 in May and topping forecasts of 228,000 increase. It’s the highest level of ADP employment growth since February 2022.
According to Nela Richardson, ADP’s chief economist: “job creation surged in June, led by consumer-facing services. Leisure and hospitality, trade and transportation, and education and health services showed strong gains. But wage growth continues to ebb in these same industries, and hiring likely is cresting after a late-cycle surge.”
The growth in employment primarily stemmed from small and midsized companies, which added 299,000 and 183,000 jobs, respectively. In contrast, large companies reported a decline of 8,000 jobs.
The services sector exhibited positive performance by creating 373,000 jobs, led by the leisure/hospitality sector with 232,000 jobs and trade/transportation/utilities with 90,000 jobs.
Within the goods-producing industry, there was an overall addition of 124,000 jobs. Construction added 97,000 jobs, while the natural resources/mining sector reported 69,000 new employees. Manufacturing saw an employment contraction of 42,000.

Chart: ADP Employment Growth Soars In June To Highest In 16 Months

Jobless Claims: What Happened Last Week?

The number of Americans registering for unemployment benefits in the week ending July 1 rose by 12,000 to 248,000, marginally above the expected 245,000.
The four-week moving average for jobless claims, which eliminates week-to-week variability, fell from 257,500 to 253,250, below the expected 256,640.
Continuing jobless claims for the week ended June 24 fell from 1,733,000 to 1,720,000 , below the forecasted 1,745,000.

Chart: Jobless Claims Rise

Market Reactions: Dollar, Yields Jump As Traders Reprice Fed Hikes

Traders wasted no time in raising their forecasts for the Fed’s impending rate hikes. A 25-basis-point hike in July is now priced in with a probability of 91%, up from 87% prior to the ADP release.

Chances of a back-to-back hike in September also rose substantially from 18% to 25%, according to the CME Group Fedwatch tool.

The U.S. dollar, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, rallied, with the U.S. dollar index fully erasing session losses.

Treasury yields spiked, with the 2-year yield rising 15 basis points to 5.1% and the 10-year yield rising 11 basis points to 4.05%.

Futures on both the S&P 500 Index and the Nasdaq 100 Index further dipped in the red, down 0.8% and 1%, respectively, ahead of the Wall Street opening bell.