The April update of the ADP Employment Report is a clear signal for keeping expectations low for Friday’s influential payrolls report from the U.S. Labor Department. Employment in the private sector grew by only 119,000 last month, according to ADP’s estimate. That’s a 41% drop in the pace of job growth vs. March’s 201,000 gain and is the slowest rate of increase since last September.
Virtually all of last month’s net gains in employment came from the services sector. Most of the cyclically sensitive goods-producing and manufacturing corners of the economy shed jobs in April, ADP reports.
The question is whether ADP’s reading of April’s labor market activity is leading or lagging the government’s payrolls report. For some perspective, consider the chart below, which compares the Labor Department’s estimate of private-sector non-farm payrolls (red line) with ADP’s numbers (blue line). The two series generally track one another closely, although in any given month or two there can and will be relatively large divergences. The issue now is deciding if the latest downturn in the ADP number for April is following the March decline in the Labor Department’s update. If so, one could reason that the ADP number is merely a delayed confirmation of what we already knew a month ago, when the Labor Department reported that March job growth suffered a considerable slowdown. In that case, Friday’s report may bring better news.
The darker interpretation is that ADP’s April number is telling us that more weakness is coming in the Labor Department’s figures. We’ll know more on Friday, but for now there’s enough room for doubt to keep the crowd guessing. Indeed, economists don’t seem especially eager to predict a big upturn in Friday’s report. The consensus forecast sees modest improvement in the government’s report: a gain of 167,000 for April’s private payrolls, according to Briefing.com. That’s higher than the Labor Department’s March estimate of a 120,000 gain. But anything well below 200,000 isn’t likely to inspire confidence about the sustainability of economic growth.
Meantime, there seems to be a disconnect between today’s ADP update and yesterday’s news from the Institute for Supply Management, which reports that manufacturing activity, including employment and new orders, strengthened in April. The ADP numbers beg to differ.
“Employment growth is slowing,” notes David Sloan, an economist at 4Cast Inc. But that’s not necessarily a death sentence for the business cycle, he adds. “The economy is growing at a fairly slow pace, though it’s sustainable.”
But not everyone is happy with today’s news. “This is an upsetting report,” complains David Carter, chief investment officer at Lenox Advisors. “The strength of the U.S. economic rebound is clearly still uncertain. Hopefully we don’t get a third consecutive summer of weaker growth.”