Back to top

Image: Bigstock

ADP +278K, Much Higher than Expected

Read MoreHide Full Article

Thursday, June 1st, 2023

We see important employment reports out this morning, sandwiched between yesterday’s JOLTS numbers and tomorrow’s BLS nonfarm payroll results, and pre-market indices are rolling with the results pretty well (so far, anyway). The Dow is currently down only -10 points at this hour (it had been -30) while the S&P 500 has ratcheted up gains into double digits and the Nasdaq has swung to positive +30 points from -5 previously.

What’s gotten market participants in a better mood, other than a calendar change (and hope springs eternal, even as the months turn to summer)? Perhaps a stronger-than-expected May private-sector payrolls report from Automatic Data Processing (ADP - Free Report) : a headline +278K is nearly +100K higher than consensus expectations, though down a tad from the downwardly revised +291K for April.

Goods-producing jobs brought in a bigger share overall: 110K, versus +168K in Services. Small businesses (fewer than 50 employees) really got to “work” in the month, adding +235K new jobs all by itself; medium-sized companies (50-499 employees) grew by +140K, and large firms actually lost -106K jobs for the month. Manufacturing dropped -48K and Financials lost -35K positions.

Leisure & Hospitality jobs, unsurprisingly, led the way last month. What’s more surprising is the sheer total of jobs filled in that industry: +208K — 75% of the ADP total private-sector positions. Perhaps most surprising of all is that this is an industry still down more than -400K positions from its pre-pandemic levels. Construction also performed well in May: +64K.

Meanwhile, Initial Jobless Claims reached its highest level since the last week of April: 232K, though down a bit from analysts’ expectations. It’s also slightly higher than the upwardly revised previous week, to 230K. It would appear our sub-200K new claims are a thing of the past at this point. Continuing Claims, however, spent their third-straight week beneath the psychologically pleasing 1.8 million: 1.795 million, up from the downwardly revised 1.789 million the previous week. So even though new claims are staying higher, they are not yet translating en masse into longer-term employment.

We also saw a revision to Q1 Productivity, and it’s a pretty substantial one: -2.1% versus -2.7% reported in the first release. Unit Labor Costs came in at +4.2%, down from the downwardly revised +6.0% in the last print. Thus, while we continue to see labor force strength — at least in a couple particular sectors — we’re also seeing productivity losses coming in less severe, while capital outlays for workforces are coming down notably.

This is not to say the Fed isn’t going to take a hard look at this data — as well as tomorrow’s Employment Situation report — in order to determine whether a pause in interest rate increases is warranted or whether these stronger jobs numbers are telling voting Fed members that their work fighting inflation is not yet finished. Yesterday, we heard Fed presidents openly considering pausing at their next meeting in a couple weeks, in order to not over-tighten the economy into recession. But would a big surprise in jobs numbers to the upside scrap those plans?

Questions or comments about this article and/or its author? Click here>>

Published in