ADP jobs report shows slowing in July; Update: Manufacturing “unexpectedly contracts” in July
posted at 11:46 am on August 1, 2012 by Ed Morrissey
Time to start breaking out the predictive indicators for Friday’s jobs report on employment in June! First up, as always, comes from private-sector payroll giant ADP, which uses its own customer base to estimate job growth in non-government positions. Today’s report predicts an increase of 163,000 private-sector jobs in July:
Employment in the U.S. nonfarm private business sector increased by 163,000 from June to July, on a seasonally adjusted basis. The estimated gain from May to June was revised down slightly, from the initial estimate of 176,000 to 172,000.
Employment in the private, service-providing sector expanded 148,000 in July after rising a revised 151,000 in June. The private, goods-producing sector added 15,000 jobs in July. Manufacturing employment rose 6,000 this month, following a revised increase of 9,000 in June. Employment on large payrolls—those with 500 or more workers—increased 23,000 and employment on medium payrolls—those with 50 to 499 workers—rose 67,000 in July.
Employment on small payrolls—those with up to 49 workers—rose 73,000 that same period. Of the 67,000 jobs created on medium-sized payrolls, 4,000 jobs were created by the goodsproducing sector and 63,000 jobs were created by the service-providing sector.
That sounds like good news on the surface, but this series almost always overstates the BLS figures — usually by a considerable margin. For instance, the 176K predicted by ADP for June turned into just 80K for the official BLS numbers. May’s ADP increase of 129K ended up as 69K from the BLS. Using ADP to figure out actual numbers for the BLS is a bit of a fool’s errand.
However, the ADP series usually tracks well as a trend indicator. The trend downward signals that July’s numbers aren’t going to be much better than June’s, and might be slightly worse. Unfortunately, a combined article at CNBC from AP and Reuters stories treats the ADP report as a numeric indicator rather than a trend indicator, at least in its lead:
A private survey shows U.S. businesses kept hiring at a modest pace in July, suggesting the job market could be improving after three sluggish months.
Payroll provider ADP said Wednesday that businesses added 163,000 jobs last month. That’s slightly below a revised total of 172,000 jobs it reported for June.
The report only covers hiring in the private sector and excludes government job growth. The Labor Department will offer a more complete picture of July hiring on Friday.
The ADP survey offered some hope that hiring is picking up. But it has often deviated sharply from the government report. In June, the Labor Department said employers added just 80,000 jobs, less than half the figure reported by ADP.
CNBC reports that analysts expect a modest improvement from June to 100,000 jobs added in Friday’s report. Based on the track record of ADP and the trend from May to June and June to July, I’d guess that 75K is a better estimate of job growth. Neither would be enough to actually add jobs in relation to population growth, which requires between 125K-150K jobs added each month.
Update: This is one reason I’d stick to the cautious side on job-growth predictions — manufacturing contracted for a second straight month in July, according to the ISM:
Manufacturing in the U.S. unexpectedly contracted for a second month in July, indicating a mainstay of the economy was struggling to improve.
The Institute for Supply Management‘s factory index was little changed at 49.8 last month from 49.7 in June. Fifty marks the dividing line between expansion and contraction. Economists surveyed by Bloomberg News projected a reading of 50.2, according to the median estimate.
Cutbacks in household purchases, unemployment exceeding 8 percent, Europe’s debt crisis and slower global growth threaten to further restrain an industry that’s been a source of strength for the economy. Factories may also temper production as companies curb spending out of concern that lawmakers will fail to prevent automatic government spending cuts and higher taxes from going into effect next year.
Estimates in the Bloomberg survey of 84 economists ranged from 48.5 to 52 for the Tempe, Arizona-based ISM’s factory report.
Breaking on Hot Air