As a bellwether for the official government report on job creation, ADP has had a rocky record, especially of late. Their reports for last two months widely overshot the data from the Bureau of Labor Statistics, whose October jobs report will come out on Friday. That makes today’s ADP estimate for private-sector job growth a hint of trouble on the horizon:
Private sector employment increased by 182,000 jobs from September to October according to the October ADP National Employment Report(R). Broadly distributed to the public each month, free of charge, the ADP National Employment Report is produced by ADP(R) in collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. …
Payrolls for businesses with 49 or fewer employees increased by 90,000 jobs in October, almost double the revised September gain of 47,000. Employment among companies with 50-499 employees increased by 63,000 jobs, up 50 percent from the previous month. Employment at large companies — those with 500 or more employees — rose by 29,000 jobs in October after adding 101,000 the previous month. Companies with 500-999 added 7,000 jobs. Companies with over 1,000 employees gained 22,000 jobs, after adding 100,000 in September.
Goods-producing employment rose by 24,000 jobs in October, representing the best month in this sector since January of this year. The construction industry added 35,000 jobs in October, roughly matching September’s gain. Meanwhile, manufacturing remained in negative territory losing 2,000 jobs in October after shrinking by 17,000 in September.
Service-providing employment rose by 158,000 jobs in October, down from a downwardly revised 182,000 in September. The ADP National Employment Report indicates that professional/business services contributed 13,000 jobs in October, less than half the September number. Trade/transportation/utilities grew by 35,000, off slightly from the previous month. The 9,000 new jobs added in financial activities were the fewest in this industry in the last six months.
Just on its face, the addition of 182,000 jobs in a month is barely above a maintenance rate for population growth. The US economy needs to add at least 150,000 jobs a month to keep pace with population expansion. Even if the US had a high rate of workforce participation and a low number of sidelined workers, this wouldn’t be a good month, and the US economy has neither of those conditions.
The problem, though, is that ADP often (but not always) overshoots the mark. Their initial September number was 200K, but the BLS figure came in at 142K in a major whiff. This report knocks their September figure down a bit to 190K, which … is still more than they predict for this month. What does that say about the upcoming BLS report? Tough to say, but it’s even odds that it will come in under the 150K bare maintenance level.
The AP analysis calls the ADP report “solid but unspectacular“:
American consumers are spending at healthy levels, encouraged by increased job security, low energy prices and improved family finances. But manufacturers have been hurt by a strong dollar and economic weakness overseas. ADP reported that factories shed 2,000 jobs in October on top of a loss of 17,000 jobs in September.
“We suspect the strength of the dollar remains a constraint on factory payrolls, along with lower petroleum prices negatively impacting on oil drilling and related equipment,” Raymond Stone of Stone McCarthy Research wrote in a research report.
US News and World Report takes a cooler view of ADP’s numbers, so to speak:
In the end, there are two general ways of looking at this report as a precursor to Friday’s government release. The first is that it’s a sign of bad things to come. ADP’s monthly total trended down and has fallen beneath the 200,000-position threshold to which analysts had become accustomed to seeing in every month since June. One could surmise that a downward trend in the ADP number, whatever that number may be, could be a sign that employment growth slowed in October and that Friday’s official data release is going to be underwhelming.
Or one could just treat the two releases as separate jobs indicators that are prone to monthly fluctuations but at the end of the year generally reach similar employment conclusions. Even though there’s a 94,000-position difference between ADP’s and the government’s August and September reports, the two are only separated by 35,000 positions over the course of the year. So they’re not terribly far off over the long term.
Analysts generally expect Friday’s numbers to show that between 160,000 and 190,000 jobs were created in October. Whether that’s enough for the Federal Reserve to warrant increasing interest rates at the Federal Open Market Committee’s final meeting of the year in December remains to be seen.
When a jobs-added number of 190,000 is the upside of expectations, then stagnation has replaced hope. Get ready for analysts to break out the U word on Friday, and not in a good way.