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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.

May’s slowdown in hiring comes amid fears of a broader economic pullback. Inflation running around its highest level in 40 years, the ongoing war in Ukraine and a Covid-induced shutdown in China, which since has been lifted though with conditions, have generated fears that the U.S. could be on the brink of recession.

Small business took the biggest hit during the month, as companies employing fewer than 50 workers reduced payrolls by 91,000. Of that decline, 78,000 layoffs came from businesses with fewer than 20 employees.

“Under a backdrop of a tight labor market and elevated inflation, monthly job gains are closer to pre-pandemic levels,” ADP’s chief economist, Nela Richardson, said. “The job growth rate of hiring has tempered across all industries, while small businesses remain a source of concern as they struggle to keep up with larger firms that have been booming as of late.”

In other economic data Thursday, initial jobless claims for the week ended May 28 totaled 200,000, a decline of 11,000 from the previous week and below the 210,000 estimate, according to the Labor Department.

Continuing claims fell to 1.31 million, the lowest total since Dec. 27, 1969, and indicative that while hiring may be slowing, the pace of layoffs looks muted.

Also, first-quarter productivity was revised slightly higher but still reflected a decline of 7.3%, the biggest tumble since 1947. Unit labor costs jumped by 12.6%, the biggest increase since the third quarter of 1982, according to the Bureau of Labor Statistics.

The biggest change in the ADP count came in leisure and hospitality, the sector most hit most by restrictions and which has been a leader throughout the recovery. May saw new hires of just 17,000, even as the summer tourism season gets set to hit full swing.

Education and health services led sectors with growth of 46,000, while professional and business services was next with 23,000 and manufacturing added 22,000. Service-providing jobs grew by 104,000, while good producers added 24,000.

Companies with 500 or more workers led with payroll gains of 122,000, while midsize firms contributed 97,000.

The report comes the day before the BLS issues its more closely followed nonfarm payrolls count, which is expected to show a gain of 328,000 following April’s 428,000. The unemployment rate is forecast to edge down to 3.5%, which would tie for the lowest since December 1969.

The BLS count includes government jobs, differing from ADP, which is a tally of private payrolls.

Most of the U.S. has been seeing just “slight or modest” economic growth over the past two months or so, according to a Federal Reserve report released Wednesday.

While all 12 Fed districts reported continued growth, the central bank’s periodic “Beige Book” indicated that four of the regions showed “that the pace of growth had slowed” during the previous period.

The report covers the period from mid-April through about May 22.

In addition to broader views on the economy, the report said most districts showed price increases rising at a “strong or robust” pace. While two districts said “rapid inflation was the continuation of a trend,” three said prices had “moderated somewhat.”

About half the districts reported that companies were still able to pass higher prices on to consumers, though some noted “customer pushback, such as smaller volume purchases or substitution of less expensive brands.”

“Surveys in two Districts pegged year-ahead increases of their selling prices as ranging from 4 to 5 percent; moreover, one District noted that its firms’ price expectations have edged down for two consecutive quarters,” the report stated.

Also, the report noted some weakness in retail as rising prices bit into sales, as well as housing, which also is being affected by higher interest rates.

“Contacts tended to cite labor market difficulties as their greatest challenge, followed by supply chain disruptions,” the report said. “Rising interest rates, general inflation, the Russian invasion of Ukraine, and disruptions from Covid-19 cases (especially in the Northeast) round out the key concerns impacting household and business plans.”

The release comes as the U.S. faces a cloudy economic picture.

First-quarter GDP contracted at a 1.5% annualized pace, and the Atlanta Fed is tracking a second quarter expansion at a 1.3% rate.

And on Wednesday, JPMorgan Chase CEO Jamie Dimon warned of darker days ahead, advising analysts and investors to “brace yourself” against a confluence of factors.

One of Dimon’s biggest concerns is the Fed beginning its “quantitative tightening” program, which technically started Wednesday. The central bank is beginning to reduce the $9 trillion in assets it is holding on its balance sheet, a process that disrupted markets and raised growth concerns during its last iteration from 2017 to 2019.

This time around, the Fed is taking an even more aggressive approach, eventually allowing up to $95 billion a month in bond proceeds to roll off each month, starting in September. The initial phase of the program will see up to $47.5 billion roll off.

The Fed also is raising interest rates to combat the highest inflation the U.S. has seen in more than 40 years.

“Shrinking central bank balance sheets add another element of ambiguity to what is already a period of heightened uncertainty,” Jonas Goltermann, senior markets economist at Capital Economics, said in a note. “After all, QT is something of an experiment: it has only been tried once before in recent times. And central bankers generally seem a lot less sure about how their balance sheet policies affect the economy and financial markets than they are about the impact of raising or lowering interest rates.”

One important element that has kept the economy afloat has been the rapid pace of job gains.

The Beige Book noted that employment was up “modestly or moderately” across all districts, though there were some reports of a slowing or freeze in hiring.

“However, worker shortages continued to force many firms to operate below capacity. In response, firms continued to deploy automation, offer greater job flexibility, and raise wages,” the report said.