Category Archives: ADP Payroll Estimate

October Private Sector Jobs and September Help Wanted Online

KEY DATA: ADP: +147,00; Construction: -15,000/ HWOL: -93,800

IN A NUTSHELL: “Moderate job gains and softening demand point to a tight but stable labor market.”

WHAT IT MEANS: Workers and the Fed Chair have been waiting for the time when the labor market gets so tight that firms have not choice but to raise rates faster. That time may not be here just yet as job growth looks like it is continuing along at a moderate pace but job demand may be softening. On the hiring side, ADP estimates that October private sector job gains were decent even if they were less than the previous few months. Critically, payroll cuts in construction greatly constrained hiring activity. On the other hand, service sector firms, led by financial, professional and business service companies, added workers quite solidly. Small business job creation was disappointing but large firms picked up the pace.

Looking down the road, job growth may not accelerate anything soon. The Conference Board’s Help Wanted OnLine measure dropped sharply in September after having been flat in August. Since peaking in May 2015, the number of ads posted online have decline by about 13%. Why that is happening is anyone’s guess, but mine is that firms may be so frustrated with their inability to fine suitable candidates they are not wasting time advertising. Don’t forget, job openings are near record highs. If it is frustration not a lack of demand that is causing the fall in advertising, the decline doesn’t signal any significant reduction in hiring.

 MARKETS AND FED POLICY IMPLICATIONS: Friday we get the government’s reading on October job gains and if you believe ADP’s estimate of private sector increases, it should be decent. Of course, I have to define decent. With the reserve army of the unemployed and frustrated depleted and the ability of firms to find qualified workers limited, anything in the 150,000 to 175,000 would be good. That level brings people off the bench to look for work, though whether they have the skills to get the available jobs is not clear. It also is enough to slowly reduce the unemployment rate. For the Fed, that type of number would be just fine if the desire is to raise rates sometime soon. The members understand that there just aren’t enough workers around to generate robust job gains. They will settle for good enough. On Friday, watch the education and manufacturing sectors carefully. Changing school calendars have messed up the seasonal adjustments and we have been getting some outsized changes in government education. Recent manufacturing surveys, including today’s ADP and yesterday’s ISM reports seem to hint at a stabilizing manufacturing workforce. That sector has been shedding workers like crazy. In other words, it’s the details not the headline numbers that matter, unless you are a political operative. They already have their talking points written and it matters not what the numbers actually indicate.

December ADP Jobs, Conference Board Help Wanted Online and November Trade Deficit

KEY DATA: ADP: 241,000/Help Wanted Online: -79,200/Trade Deficit: $39 billion ($3.2 billion narrower)

IN A NUTSHELL:   “A solid labor market coupled with a narrowing trade deficit points to continued strong growth ahead.”

WHAT IT MEANS:  Employment Friday is this week and the first guess at the private sector number comes from ADP, which estimated that employers added workers solidly in December.  That said, the government’s data and the ADP numbers sometimes diverge widely.  For example, ADP estimated that private sector payrolls rose by 227,000 in November while the government put it at 314,000.  But the 3-month trend has tended to be fairly close and that raises a question about Friday’s jobs report.  For the fourth quarter, ADP puts total private sector job gains at 710,000.  After two months, the government has it at 550,000, a difference of 160,000.  Could December’s increase be below 200,000?  Possibly, though I think it will be between 225,000 and 250,000.  Companies of all sizes are adding jobs and that should mean continued solid payroll gains.  I remain optimistic about the job market.

Helping drive the economy forward, regardless what investors might think, is a rapidly narrowing trade deficit.  Exports are beginning to suffer from the weakness around the world, but that is being offset by declining petroleum imports.  The drop in exports is not a major concern as most of the decline came from Boeing shipping were planes.  That is likely just a timing issue.  Vehicle shipments were off as well and that may reflect slower world growth.  On the import side, the only category that posted a sharp gain was cell phones.  Thanks Apple.  Adjusting for prices, it looks like the trade deficit will be fairly stable.  There have been concerns that trade would slow growth in the fourth quarter but right now that is not the case. 

The Conference Board’s Help Wanted Online Index plunged in December after having soared in November.  Actually, this one month up and one month down pattern seems to be a routine that is odd given the consistently strong payroll increases.  These data are supposed to be seasonally adjusted, so I guess I will simply say that the decline in online want ads is a concern that should unwind in a month.

MARKETS AND FED POLICY IMPLICATIONS: The recent data have been disappointing but the ADP and trade numbers were better than expected.  Indeed, today’s reports raise more questions than they answer.  Friday is only two days away so we will have a better picture of the labor market soon enough.  What investors will make of these reports is anyone’s guess.  I don’t even think investors know what they are thinking.  The markets are reacting emotionally so it’s best to simply step back and not make too much of the doings there.  And don’t forget that Wall Street and Main Street have been delinked for a long time so making a judgment about the economy based on stock movements is silly.  As for the Fed, the focus is still on wages but the issues in Europe and the continued low inflation rate are complicating things.

November Supply Managers’ Non-Manufacturing Index, ADP Jobs and Help Wanted Online

KEY DATA: ISM: +2.2 points: Orders: +2.3 points; Employment: -2.9 points/ADP: +208,000/HWOL: +170,200

IN A NUTSHELL:   “The October lull was just temporary and it looks like the job market is getting better.”

WHAT IT MEANS:  Friday we get the “all important” November employment report but until then, we will be finding out from other sources how the economy did last month.  Right now, all signs are go.  It appears that the services sector pause in October was only to refresh, not depress.  The Institute for Supply Management’s Non-Manufacturing index rebounded sharply in November, led by a surge in new orders.  Similar to the ISM manufacturing report, export demand jumped, though service sector imports grew a little less rapidly.  Despite ramped up production, order books are filling more rapidly and that bodes well for future activity.  The only negative was employment.  But the index simply came down from a very high level to a high level so hiring is still solid.

I am still quite optimistic about Friday’s jobs numbers.  ADP estimates that November private sector job gains came in at a decent though nothing-great level.  Small businesses are hiring like crazy.  That is interesting as the Paychex/IHS Small Business Jobs Index fell in November, so I don’t know what to make of this.  There was some improvement in large firm hiring but that group needs to do more.  And more may be coming.  The Conference Board’s Help Wanted OnLine index jumped in November as the number of new ads surged.  Firms need more workers, but they don’t seem to be doing a good job filling the open positions.  That view was supported by the latest semi-annual survey by Dice Holdings, which indicated that “more U.S. companies are revving up hiring plans”.  Even if Friday’s report is not a huge one, next year is shaping up to be a great one for workers.  

MARKETS AND FED POLICY IMPLICATIONS:  Every day, we continue to see that economic conditions are not only good but they are getting better.  The labor market is tightening and orders are flowing in.  Meanwhile, businesses continue to hold the line on compensation.  Today’s revised productivity numbers indicate that there has been largely no gain in inflation-adjusted earnings over the past year.  That is good for earnings but bad for consumer spending.   Investors should appreciate today’s numbers as they point to a solid but hardly overheating labor market.  That implies the Fed may not be facing demands to raise rates anytime soon.  But the Fed members will be parsing Friday’s unemployment rate and the wages data.  Those are the key indicators and as long as wages remain reasonably well contained, the FOMC can dither. 

October Supply Managers’ Non-Manufacturing Survey, ADP Payrolls and Online Labor Demand

KEY DATA: ISM (Non-Manufacturing): -1.5 points; Employment: +1.1 points/ADP +230,000/Help Wanted: +11,700

IN A NUTSHELL:   “The electorate may be disappointed with the economy but the numbers are pointing to accelerating growth and a tightening labor market.”

WHAT IT MEANS:  The Democrats got shellacked yesterday and massive discontent with the economy was a key reason for the rout.  But politics is politics and it often has little to do with reality.  In this case, there are reasons voters are correct and reasons they are wrong.  First, the wrong.  Basically, economic activity continues to rise.  The Institute for Supply Management’s Non-Manufacturing Index fell in October, but it remains at a level that is consistent with solid to strong growth.  Importantly, especially with the October employment report coming out on Friday, the employment index continues to break out on the upside.  Few firms are cutting back and more are hiring, a good sign for workers.  New orders continue to grow, but a little less briskly, while production has come down from outer space to the stratosphere.  In other words, everything is moving ahead quite strongly, though maybe not at break neck speed.

Where the electorate was right, was their feeling that their own economic conditions are just not great.  As I have said, ad nauseam, it is hard to spend, or feel good about things, if your income is going nowhere.  But that could change soon.  The labor market is tightening at a rapid pace, and it looks like we get confirmation of that on Friday.  ADP’s estimate of private sector payroll gains came in higher than their number for September and that could mean we will see a very strong October job increase.  The strong rise occurred despite an almost nonexistent rise in large-business hiring.  This sector had been strong for quite some time, so I don’t know what went on.  A firming labor market was also supported by a solid rise in the Conference Board’s Help Wanted OnLine Index.  Firms are looking for lots of people and I suspect they are also hiring a lot more workers. 

MARKETS AND FED POLICY IMPLICATIONS: The sour view about the economy expressed by voters makes sense when you consider that few have seen their wages rise and many have seen their benefits cut and their copays surge.  The only thing that will change that situation is a labor market that forces firms to bid for workers.  Each month, we see more and more signs that labor shortages are starting to appear.  We are approaching full employment nationally, but in some areas, industries and occupations, that condition already exists.  It’s just that shortages need to be more widespread before wage gains will accelerate and benefit cuts will be reversed.  I suspect by the spring, the intransigence toward paying more will fade as job openings become so great that firms have no choice but to start raising offers.  We are not there yet, but the Fed members need to recognize that a rising wage environment is not that far away.  As for investors, any euphoria over the election results may have to be tempered by the simple fact that being in power means you have to actually try to govern, something that neither party has bothered with lately.

Second Quarter GDP and July ADP Jobs Forecast

KEY DATA: GDP: +4.0%; Consumption: +2.5%; Consumer Prices: +2.3%/ADP: 218,000

IN A NUTSHELL:  “The strong second quarter growth supports continued solid payroll gains and a further tightening of the labor market.”

WHAT IT MEANS: The Fed is meeting and the members now know that the winter of our discontented economy is past.  Economic growth had declined sharply in the first quarter, though the latest estimate of 2.1% was not as ugly as the previous 2.9% guess.  Still, that size fall in activity raised questions about the true strength of the economy, an issue that is no longer a concern.   Growth rebounded sharply in the spring, led by strong vehicle sales, solid export activity, strong business investment and inventory building and renewed government spending at the state and local government sectors.  In other words, only the federal government remains a weight around the economy’s neck.  On the inflation front, consumer costs accelerated, rising at the fastest pace in three years.  The pace was not great but at 2.3%, it is above the Fed’s target of 2%.  Excluding food and energy it was right at the number.

Friday we get the July jobs report and ADP expects it to come in a little lower than the June gain.  The economy probably still averaged at least 250,000 new jobs over the past two months and that is strong.  The moderation in hiring, if you can call it that, was largely in the small business component.  Payrolls rose by about 40,000 less in this component than in June.  That doesn’t worry me since Paychex/HIS reported yesterday that small businesses were adding jobs faster, so that slowing may unwind in August.  Still, the increases appear to be across all industry segments.  Consensus is for about 230,000 new positions which should support a drop in the unemployment rate to 6.0%.  I think job gains could be a touch better, closer to 250,000.


MARKETS AND FED POLICY IMPLICATIONS:  This report was much higher than most expected (I was at 4.1%).  It should also put to rest the questions about the rebound from the winter.  The economy came back and even though there may have been a little extra inventory building that could moderate third quarter growth, solid activity was so widespread that you cannot call this number an aberration.  We are likely to see growth in the 3.5% to 4% range during the second half of the year.  With job gains strong and the labor marketing tightening, income should begin rising faster, powering better consumer spending.  Chair Yellen is focusing on wages, but that is a lagging indicator which may lag even more because of business intransigence on raising compensation.  That is, when broad wage increases start showing up, it will be late in the process to begin dealing with the rising cost pressures.  That is a warning to both the Fed and business executives.  Either have plans in place soon to deal with the inevitable workings of supply and demand in the labor market or play catch up.  That is why I think the first rate hike comes in the first quarter of next year.  It is also time the bond markets begin focusing on the increasing likelihood that growth will be closer to my forecast, which is well above consensus, and as a consequence prices will accelerate faster than expected.  We are not talking high inflation, but inflation that exceeds Fed targets.

June ADP Payroll Estimate and Help Wanted Online

KEY DATA: ADP: 281,000; Small: 117,000; Medium: 115,000; Large: 49,000/Online Ad Demand: up 155,900

IN A NUTSHELL:  “Hiring is strengthening and that, more than anything else, is pointing to much better growth ahead.”

WHAT IT MEANS: It’s the week of the employment report, which will come out tomorrow and that means we get the first attempt at estimating the number with the ADP report.  The employment services company looks at private sector payroll numbers and came up with a huge increase in June.  The details were quite positive.  Firms of all size added lots of new workers.  The big gains in small firms indicate that the expansion is quite broad based.  That is confirmed with the industry data, where hiring was good in manufacturing, construction and all service-related firms.  

Another report that points to a strengthening of the labor market was The Conference Board’s Help Wanted Online Survey, which showed that openings rose solidly in June.  Every one of the occupational categories was up.  Geographically, strong gains were posted in the Northeast, South and West.  The only weakness was in the Midwest, where demand was essentially flat.  Eighteen of the twenty metro areas also showed increases with only one down and one flat.  There was a caution raised in the report.  Over the year, demand for professional workers was down while ads for lower-wage workers rose. 

MARKETS AND FED POLICY IMPLICATIONS:  The ADP report has been somewhat underestimating the Bureau of Labor Statistics numbers recently so it is possible the June number makes up for that shortfall.  But the widespread nature of the payroll gains in the ADP report implies that the consensus of about 215,000 may be too low.  I have been in the 250,000 range so I will keep my estimate, but I have tended to be a bit aggressive.  Nevertheless, I expect tomorrow’s report to be quite good and if the unemployment rate does decline, as the low unemployment claims point to, it would create a very positive buzz going into the July 4th weekend.  Those thinking that the Fed will be on hold not only through this year but next year and into 2016 may have to rethink their forecasts as the unemployment rate will be closing in on full employment.  Indeed, the ratio of unemployed to job openings is falling to a level that is indicating the emergence of labor shortages in some regions and metro areas.  The markets and the Fed have not shown any inclination to believe that wage pressures could build anytime soon.  That may be a mistake.  But today we can conjecture: Tomorrow we get the numbers, so it is wise to wait and see.