ADP Sees Job Growth in October, Low Job Losses from Challenger

The ADP Employment report each month is followed as an early indicator of the BLS (Bureau of Labor Statistics, U.S. Dept of Labor) Non-Farms Payrolls (NPF) number which follows a few days later.  The  October 2010 ADP Payroll data reported an increase of 43,000 employed in October.

The data for both data sets since 2000 is shown in the following graph:

Except for the collapse in 2008-09, the BLS numbers tend to be higher than the ADP numbers.

The following graph supplied by John Lounsbury shows the correlation between ADP and NFP (government jobs excluded) over the past ten months.  Note:  The graph from ADP (above) includes government jobs.

The number from ADP of +43,000 projects a private NFP number of +140,000.  Caution:  Observe that if the red “X” falls exactly on the trend line, it will be the first time it has happened in the time span covered.  In fact 3 of the ten prior data points are more than 30,000 off the line.  To cover the variation of data within this small sample, 70% of the previous deviations will be included if the private NFP falls between approximately +110,000 and +210,000.  The red “X” is simply the center of a rather large opportunity window.  

It is worthwhile to review the ADP report in detail.  The headlines from ADP’s press release :

Private-sector employment increased by 43,000 from September to October on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from August to September was revised up from the previously reported decline of 39,000 to a smaller decline of 2,000.Since employment began rising in February, the monthly gain has averaged 34,000 with a range of -2,000 to +65,000 during the period. October’s figure is within this recent range and is consistent with the deceleration of economic growth that occurred in the spring.

Employment gains of this magnitude are not sufficient to lower the unemployment rate. Given modest GDP growth in the second and thirds quarters, and the usual lag of employment behind GDP, it would not be surprising to see several more months of lethargic employment gains, even if the
economic recovery gathers momentum.

According to the ADP Report, employment in the service-providing sector rose by 77,000 in October, the ninth consecutive monthly gain. This increase was enough to offset an employment decline in the goods-producing sector of 34,000. Manufacturing employment declined 12,000 during October, the second consecutive monthly decline.

Large businesses, defined as those with 500 or more workers, saw employment decline 2,000 while employment among medium-size businesses, defined as those with between 50 and 499 workers, increased by 24,000. Employment among small-size businesses, defined as those with fewer than 50 workers, increased by 21,000.*

In October, construction employment dropped 23,000. Construction employment has declined for over three years and the total decline in construction jobs since the peak in January 2007 is 2,313,000. Employment in the financial services sector dropped 2,000. Financial Services employment has declined for over 3 years. 

ADP is the largest USA payroll services provider who uses data derived from an anonymous subset of ADP’s 500,000 U.S. business clients to derive this report.  The BLS uses similar methodologies to derive part of their jobs report which will be released later this week.

Click on graphic for larger image

There is still a very negative trend in goods production as shown on the above table.  Econintersect believes as long as this negative trend continues, there can be no real economic growth.

Click on graphic for larger image.

The good news is that there is a large growth in the service sector of the economy including a large contribution from the growth engine of the economy – small service business.ADP’s release is issued coincident with the October 2010 press release from global outplacement firm Challenger, Gray & Christmas, Inc.   The importance of the Challenger release is that it offers a picture into the corporate world showing whether layoffs are ongoing.

Econintersect believes this employment crisis is not rooted in job losses – but the inability of the economy to generate jobs.  The Challenger report continues to confirm this view.  The headlines from their press release in part:

Downsizing activity remained flat in October, as employers announced job cuts totaling 37,986 during the month. That was 2.2 percent more than the 37,151 planned layoffs in September, according to the latest job-cuts report released Wednesday by global outplacement firm Challenger, Gray & Christmas, Inc.

October marks the sixth month in the last seven in which fewer than 40,000 job cuts were announced. It was the tenth consecutive month this
year that saw fewer job cuts than the same period a year ago. Last month’s total was 32 percent lower than October 2009, when 55,679 job cuts were announced.

Overall, the pace of job cutting is down 62 percent from a year ago, with employers announcing 449,258 job cuts year to date, compared to
1,192,587 over the same period in 2009.

……..“Job cuts are the lowest they have been in a decade, due in part to a slowly improving economy; if not the fact that many employers have
basically cut their workforces to the bare minimum. Unfortunately, the lack of spending by consumers and businesses is stunting demand for new workers. The modest gains in business activity are currently being met by increasing hours of existing workers,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.

“The problem is that consumer spending will not increase until more people have jobs. But businesses won’t begin expanding production or
hiring until there is more demand for their products and services. Increased government spending, while economically justified, has become politically unfeasible. So, right now, it is difficult to imagine what exactly will provide the spark for increased hiring and an accelerated recovery. Something has to provide that spark, though, or the economy will be stuck in mud for the foreseeable future,” noted Challenger.

Click on graphic for larger image.

David Rosenberg, Chief Economist at Toronto’s Gluskin Sheff, provides the following graphic of year over year changes in job changes in various industry sectors:

We await Friday’s Job Report from the Bureau of Labor Statistics where Econintersect can dissect the variances between the employment data sources.  We will find out Friday whether or not the Non-Farms Payrolls (private only) falls within the 50% window that John Lounsbury’s graph implies.

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