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ADP Growth Sinks to 27K -- What's This Mean for Friday?

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Wednesday, June 5, 2019

Private-sector payroll numbers for May posted a huge drop from April, and from every month in 2019 so far: ADP (ADP - Free Report) said 27K new jobs were created last month, far below the range of 170-180K expected. It’s also roughly 10% of April’s downwardly-revised 271K.

This marks the lowest monthly total for ADP since February 2010, when private-sector jobs were just starting to emerge from deep gouges month after month. The news has struck pre-market futures as well, swinging from +170 points on the Dow to just +77 now.

That said, this figure can be read more as an adjustment than the start of a new down-trend. Analysts had been looking for job growth to slow for quite some time, but it just wasn’t showing up in the data. Now, however, if you average out the past 3 months, we arrive at 152K jobs per month — exactly in-line with predictions. In fact, even the 200K+ jobs numbers we had been enjoying have tapered off over the last 6 months, averaging 198K over that time.

None of this should shatter any investors’ world view; this late in the employment recovery cycle, a slowdown in new hires had been widely expected. May’s number is likely overstating the weakness of the current jobs market, but almost every month in 2019 previous had been overstating it.

Small businesses lost 52K new jobs on the month, as labor shortages began to show up in the data, partially derived from the ongoing trade war with China. Small companies simply cannot compete with its bigger competition, which can offer better benefits and location comparatively. This is especially true with small retail boutiques and construction contractors — Construction by itself lost 36K private-sector jobs last month.

Manufacturing also slipped by 3K in May; we don’t expect the new tariffs on Mexican goods next week to give this number a boost, considering how much taxed Mexican components will affect finished U.S. goods. Education/Healthcare led the way again, followed by Leisure/Hospitality, though Professional/Business Services fell off drastically from a big showing earlier this year.

What this means for Friday’s non-farm payroll report from the U.S. Bureau of Labor Statistics (BLS) is anyone’s guess. Over time, the ADP and BLS numbers tend to correlate, but in real time they can be wildly disparate. Currently, expectations are — again — for 170-180K new jobs for the month, but this estimate was recoerded before the 27K headline from ADP this morning.

Mark Vickery
Senior Editor

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