ADP Sees Jobs Drop 22,000

The nation’s largest payroll processor, Automatic Data Processing (ADP) reported today that the country lost 22,000 private sector jobs in January. That is slightly better than the consensus expectation of a 30,000 job drop.

This is the most important preview of the big “official” jobs report from the BLS due out on Friday morning. While in the past, the ADP numbers and the BLS numbers have not always seen eye to eye, in December the ADP numbers were spot on -- with an original estimate of -84,000 and the BLS coming in at -85,000.

This month, ADP has revised down the job losses for December by 23,000 to 61,000. The overall decline in jobs is the smallest by ADP’s reckoning since February 2008.

Behind the Headline Number

In distinct contrast to the ISM numbers that were released on Monday, ADP sees continuing job losses in the Manufacturing sector, with employment falling by 25,000 in the month. The ISM survey of manufacturing purchasing managers had suggested gains in employment.

ADP noted a gain of 38,000 Service sector jobs in January. The ISM non-manufacturing, or Service, survey is due out later this morning, but has recently been running weaker than the manufacturing survey.

In total, ADP noted 60,000 jobs lost in the goods-producing sector of the economy, but they also noted a 37,000 job loss in Construction, and 25,000 lost in Manufacturing. Since goods-producing is generally thought of as Manufacturing and Construction, there is an unexplained job gain of 2,000 somewhere in their numbers.

This was the smallest loss in manufacturing jobs since January 2008, but it was still a loss. Construction has been particularly hard hit in the Great Recession, with a total of more than 1.8 million jobs lost since that sector started to hit the skids all the way back in January of 2007.

By size of business, large firms (500 or more workers) dropped 19,000 jobs and small businesses (under 50 workers) shed 12,000 positions. Medium-sized firms, on the other hand, added 9,000 jobs in January. The gain by medium sized firms was the first since January 2008.

All firm size categories reduced employment in the goods-producing sector, while small and medium service sector firms added positions. Large service sector firms showed no change in jobs.

What We Should Take From This

Overall, I would count this as a moderately positive report, not so much for the 8,000 beat relative to consensus expectations but for the big revision to the December numbers.

This report, though, is just the appetizer -- the main course comes on Friday. While people are understandably anxious to see actual job gains, it is important to consider just how much progress has been made over the last year.

The consensus expectation for the Friday report (which also includes government jobs, while ADP is private-sector only) is for a gain of 13,000 jobs. In January of 2009, we lost 741.000 jobs. Job losses have fallen sharply and steadily ever since the ARRA was passed.

If a ship is headed onto the rocks, and the captain orders the engines into full reverse, is his order a failure if the ship slows but does not immediately reverse course? Remember, the U.S. economy is a supertanker, not a speedboat.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.

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