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May 1: ADP Data Clearly Off the Mark

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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) 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.

Today’s economic releases include the ISM Manufacturing Index which is expected to decrease to 51.0 and Construction Spending, both of which are scheduled for release at 10:00 AM EST.

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