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Weak ADP Number Shows Slowing Labor Market

Wednesday, May 4, 2016

The negative momentum from the last few sessions is expected to remain in place at the open today, with the reemergence of global growth worries raising doubts about the sustainability of the market’s rebound from the February lows. Pre-open sentiment indicates negative opens for all the major indexes, which would follow overnight weakness in all global markets.

This morning’s weaker-than-expected April ADP jobs report likely adds to the global growth worries. The U.S. labor market has been a source of consistent strength and stability in an otherwise uncertain economic backdrop. Even as a number of other key U.S. economic indicators showed weakness and loss of momentum over the last two quarters, the labor market continued to chug along, with all labor market readings like weekly jobless claims, the ADP survey and the monthly non-farm payroll report from the government’s Bureau of Labor Statistics (BLS) showing consistent gains month after month. Today’s ADP report is the first weak showing on the labor market front, which, if confirmed by the Friday government jobs report, will represent a notable deterioration in the U.S. economic outlook

The ADP report shows April private-sector jobs of 156K vs. consensus expectations of 196K and March’s 194K (revised down by -6K). This is the lowest monthly tally for the ADP series in three years, with the weakness particularly notable in the goods-producing industries. April witnessed a -13K drop in the tally following a downwardly revised 5K gain in March, while construction added 14K jobs in April following adding 18K in March. Service sector jobs totaled 166K in April vs. 189K in March. Estimates for the Friday BLS report, which currently stand at 200K per Bloomberg.com for the ‘headline’ and 195K for the ADP-comparable private-sector jobs, will likely come down ahead of that release. The BLS report showed 215K in March, with the unemployment rate ticking up to 5%.

The ADP report is supposed to serve as a preview of the more important monthly BLS report. We will see what Friday’s BLS report shows. But if the ADP survey is a sign of things to come, then it will have direct Fed implications, particularly when combined with the reemergence of global growth worries in recent days. It is hard to see the market holding onto its gains from the February lows given this backdrop.

Sheraz Mian
Director of Research

Note: In addition to this daily pre-open article about the market, economy, and the corporate earnings picture, Sheraz Mian also provides detailed earnings analysis in his weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz Mian publishes a new article, please click here.

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