Wednesday, August 5, 2020

Monthly private-sector payroll numbers have been released this morning by Automatic Data Processing ADP, with a clear good news/bad news theme. We’ll start with the bad news: we see a headline number of 167K new private-sector jobs created in July, which rather resembles a pre-pandemic tally roughly averaging the 6 months previous to the deep fallout and subsequent climb-back in the U.S. labor market. This headline figure was well below the 1 million new private-sector jobs expected.

Further, Goods-producing jobs came in at only 1000 nationwide, with losses of 8000 jobs in Construction. The Financial Activities sector lost 18K jobs in the month, working against a tally of 166K Services sector jobs created. Medium-sized companies (between 50-499 employees) shed 25K positions in July, while both Small and Large businesses gained. All of these measures point to a slowing down in U.S. employment after big gains the previous two months.

There is some good news, however: June’s originally reported 2.37 million new jobs added nearly 2 million on the revision to 4.31 million. This followed 3.07 million private-sector positions filled in May, which did plenty of heavily lifting out of the deep well of job losses incurred during March and April. In fact, the by-industry breakdown resembles those pre-crisis gains — a pleasant memory from a robust labor market: Professional/Business Services +58K, Education/Healthcare +46K and Trade/Transportation +41K. Large companies hired by far the most workers at 129K last month, with Small firms hiring 63K.

What this means for Friday’s non-farm payroll headline is that the 1.48 million consensus may need to come down a tad. This is not to say the ADP report and the non-farm payrolls (reported by the U.S Bureau of Labor Statistics, or BLS) must be in real-time alignment; in fact, they often aren’t. But a factor of 9x today’s employment report does look untenable.

In fact, what we’ve seen over the past several months, save June (prior to the coming BLS revision), is that the ADP headline has always run hotter than BLS. This is not to suggest Friday’s number will definitely be worse than today’s on U.S. employment, but that since the pandemic has affected the labor market, ADP accounts for -12.1 million jobs while BLS shows -14.8 million (prior to Friday’s report). These remain significant holes from which to dig out of; we clearly have lots of work ahead of us.

June’s U.S. Trade Balance was also reported before today’s opening bell, coming in a smidge below expectations to -$50.7 billion. This follows a slightly downwardly revised -$54.8 billion from May, and toward the lower levels we’ve seen in the past few years. This lower range (prior to 1974, we saw a $0 trade balance almost every month) is still much better than what we saw during last decade’s Great Recession, which peaked at around -$68 billion.

Markets are in the green again today, though down somewhat from pre-ADP levels. Q2 earnings season continues, and the country awaits a relief package from Congress to replace the CARES Act which expired last week. Should we see nothing produced in the next couple weeks on this, we can expect employment figures for our current month to be down significantly.

Mark Vickery
Senior Editor

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Key Earnings Reports For Aug 05, 2020