Let’s start off with all the usual caveats regarding the ADP employment report as a predictive indicator. Even on trending, this report hasn’t lined up well over the years with the official BLS stats on job growth. With the May jobs report due out tomorrow from BLS, though, this doesn’t look promising. The private sector only added 128,000 jobs in May, ADP estimates, and small businesses actually lost 91,000 workers.

It’s the lowest level over the past year from ADP:

What did economists expect ADP to report? Job additions nearly three times as high, Reuters notes, and points out that ADP also lopped off another 45K from its April report. It’s the worst reading from ADP since the pandemic layoffs two years ago:

Job creation at companies decelerated to the slowest pace of the pandemic-era recovery in May, payroll processing firm ADP reported Thursday.

Private sector employment rose by just 128,000 for the month, falling well short of the 299,000 Dow Jones estimate and a decline from the downwardly revised 202,000 in April, initially reported as a gain of 247,000.

The big drop-off marked the worst month since the massive layoffs in April 2020, when companies sent home more than 19 million workers as the Covid outbreak triggered a massive economic shutdown.

By ADP’s count — which usually differs somewhat from government figures — payrolls had increased by nearly 500,000 a month over the past year.

This certainly looks like deceleration in jobs growth. We’ve also seen a deceleration in the BLS data over the past few months, but that has been at once more dramatic and also less consistent. April’s BLS jobs report came in at 115,000 jobs added, for instance, but the US economy added 428,000 in March and 714,000 in February. That only loosely lines up with ADP’s numbers, even on a trendline, but those do point in the same general direction — a slowdown.

Even if the slowdown hasn’t hit yet, it’s coming, writes Paul Davidson for USA Today. There are other indicators than ADP that signal an end to the “job growth party” of the past two years:

Economists predict job gains of 325,000, according to a median estimate of those surveyed. That total would still be robust by historical standards – and the Labor Department could report a higher number.

But a slowdown is coming. Payroll processor ADP said Thursday that businesses added just 128,000 jobs in May – its lowest count since February 2020 – though its report often varies significantly from the Labor Department’s tally of public and private-sector gains. Average monthly payroll additions could fall to 261,000 by summer and 205,000 by fall, Moody’s Analytics predicts. And some analysts forecast an even bigger downshift, to just over 100,000 by the end of the year.

Several forces are coalescing to temper the gains, including a slowing economy, a lingering shortage of workers and U.S. employment that’s fast approaching its pre-pandemic level after shedding 22 million jobs in the spring of 2020.

And it’s probably not a bad thing.

Isn’t it? Davidson notes that the 400K/month average for jobs growth over the past year is the hottest on record, but it follows the greatest short-term destruction of jobs in US history. In a real sense, those aren’t jobs added as much as they are jobs recovered. In February 2020 before the pandemic forced the destruction of 20 million jobs, the US employed 152,504,000 people. As of the April 2022 jobs report, the US employed 151,314,000 people. That leaves the US 1.19 million jobs short of where we started.

That, however, is just the static analysis, not the proper calculation for the job creation that should have come in a dynamically growing population. At a population growth rate of roughly 2 million a year and an employment-population ratio of 60%, we are short an additional 2.4 million jobs, leaving us closer to 3.5 million jobs short of where we should be without the pandemic.

The truth is that we should be adding many more jobs per month than we are, and should have been throughout 2021 especially. The losses in the small-business sector seem especially alarming, considering that sector’s importance in expanding jobs and innovation. If those losses are reflected in the official BLS stats tomorrow, we’re going to come up generationally short of recovery from the extraordinary government interventions of 2020, and with that will likely drift on a course of economic stagnation for some time to come.

A Wall Street Journal report from ten days ago suggests that the small-business decline might be real. Economic confidence dropped sharply among that class of ownership:

Small businesses are flashing warning signs on the U.S. economy as inflation, supply-chain snarls, a shortage of workers and rising interest rates darken the outlook for entrepreneurs.

Fifty-seven percent of small-business owners expect economic conditions in the U.S. to worsen in the next year, up from 42% in April and equal to the all-time low recorded in April 2020, according to a survey of more than 600 small businesses conducted in May for The Wall Street Journal by Vistage Worldwide Inc., a business-coaching and peer-advisory firm. …

Small businesses are often the first to feel the effects of an economic downturn. Reports of diminishing optimism are coming from a variety of sectors, from manufacturing to consumer products and services.

“Customers that would typically buy a truckload are buying half a truckload,” said Drew Bahner, chief executive of Expanded Solutions, an Oklahoma City-based manufacturer of expanded metal products used for industrial applications, fencing and other security needs, and patio furniture. “We are not losing business. They are not seeing the business.”

This may be the canary in the coal mine, in other words. Let’s hope that ADP missed the mark, in other words, but let’s also recognize that our current economic policies are leading us toward generational stagnation regardless of one month’s reports.