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Ahead of Wall Street

Wednesday, May 1, 2013

The market sees all evidence of economic weakness as guaranteeing continued Fed support. As a result, stocks have moved into record territory as economic and earnings data have come on the weak side.

We have the manufacturing ISM reading coming out a little later, but the jobs data from Automatic Data Processing (ADP - Analyst Report) this morning was clearly off the mark. The ADP miss today means that estimates for Friday’s non-farm payroll report from the government’s Bureau of Labor Statistics (BLS) will likely come down. But I would be surprised if the market would react differently in any material way to today’s soft economic data.

The April ADP jobs tally came in weaker than expected this morning: up +119K vs. consensus of +155K. The March tally was revised lower -27K to 131K. This report is expected to serve as a preview of the non-farm payroll report from the government’s BLS coming out on Friday.

The consensus expectation is for ‘headline’ BLS gains of +150K. A straight extrapolation of today’s ADP report would mean that Friday’s BLS number would be around 110K instead of the 150K consensus expectation pre-ADP.

Small businesses, with employers having less than 50 employees, added +50K jobs in April. Medium-sized businesses (less than 500 employees) added +26K jobs in April, while large businesses (1000+ employees) added +43K jobs during the month. Weakness in the small-business group is the most pronounced, with some anecdotal evidence that changes to healthcare mandates may be having an impact on hiring trends in that space.
 
The goods-producing sectors added +6K jobs in April, substantially lower than the last few months, while the services-providing sector’s tally of +113K jobs in the month was not substantially different from sector’s recent pace. Construction added +15K jobs, a slower pace than would be expected given the broad momentum in the sector. Manufacturing lost -10K jobs, reconfirming the negative trends from other data points about the factory sector.

We will see how the April manufacturing ISM reading shows a little later, though the Chicago PMI numbers from Tuesday don’t bode well on that front.

Sheraz Mian

Director of Research

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