Payroll processor ADP released a report on Wednesday showing private sector employment increased by much less than expected in the month of July.
ADP said private sector employment rose by 330,000 jobs in July after surging by a downwardly revised 680,000 jobs in June.
Economists had expected private sector employment to spike by 695,000 jobs compared to the jump of 692,000 jobs originally reported for the previous month.
“The labor market recovery continues to exhibit uneven progress, but progress nonetheless” said ADP chief economist Nela Richardson.
“Bottlenecks in hiring continue to hold back stronger gains, particularly in light of new COVID-19 concerns tied to viral variants,” she added. “These barriers should ebb in coming months, with stronger monthly gains ahead as a result.”
The increase in private sector employment was partly due to the addition of 139,000 jobs in the leisure and hospitality sector, although the pace of job growth in the sector has slowed.
The report also showed job growth in the health care and social assistance, professional and business services and trade, transportation and utilities sectors as well as a slight increase in manufacturing jobs.
ADP said employment at midsized and large businesses increased by 132,000 jobs and 106,000 jobs, respectively, while small businesses added 91,000 jobs.
On Friday, the Labor Department is scheduled to release its more closely watched monthly jobs report, which includes both public and private sector jobs.
Economists currently expect the report to show employment surged up by 880,000 jobs in July after spiking by 850,000 jobs in June. The unemployment rate is expected to dip to 5.7 percent from 5.9 percent.
“The ADP is not always a good predictor of the official non-farm payroll employment figures but, for what it’s worth, it suggests a clear downside risk to not only the consensus forecast at 880,000, but our own below-consensus 650,000 estimate,” said Paul Ashworth, Chief U.S. Economist at Capital Economics.