The Great Disappointment is Jobs

Employment fell in September 2010 according to ADP.  Their headlines in part:

Private-sector employment decreased by 39,000 from August to September on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today.

According to the ADP Report, employment in the service-providing sector rose by 6,000 in September, the eighth consecutive monthly gain. This increase was not enough to offset an employment decline in the goods-producing sector of 45,000. Construction employment dropped by 28,000 during September and manufacturing employment declined 17,000, the third consecutive monthly decline.

“Although some industry sectors are experiencing positive job growth, at this point in the recovery job creation remains surprisingly anemic, with no tangible evidence of acceleration,” said Gary C. Butler, President and Chief Executive Officer of ADP.  “Consumers remain cautious about their spending which translates to lower demand for products and services. Businesses need to see growing demand before they will increase hiring. To support job creation, our nation’s policymakers need to do more to incentivize businesses to invest in expansion and to accelerate key tax and regulatory decisions that will reduce uncertainty across the economy.”

According to Joel Prakken, Chairman of Macroeconomic Advisers, LLC, “The decline in private employment in September confirms a pause in the economic recovery, already evident in other data. A deceleration of employment occurred in all the major sectors shown in the ADP Report and for all sizes of payroll. The September decline in employment followed seven monthly increases from February through August. However, over those seven months, the average monthly gain in employment was an anemic 34,000.

There simply is no momentum in employment.”  Prakken added, “Unlike the estimate of total establishment employment to be released on Friday by the Bureau of Labor Statistics (BLS), today’s ADP National Employment Report does not include the effects of federal hiring — and now firing — for the 2010 Census.  Hiring for the census peaked in May and is still tapering down slightly.”

“Large businesses, defined as those with 500 or more workers, decreased by 11,000 while employment among medium-size businesses, defined as those with between 50 and 499 workers, decreased by 14,000. Employment among small-size businesses, defined as those with fewer than 50 workers, decreased by 14,000,” said Prakken.

What a “recovery”!   In the last 12 months, the economy has lost 195,000 private sector jobs.  And now 15 months after the end of the recession, we are still shedding jobs.  But all indications is the problem is jobs creation – not loss of jobs.  The amount of jobs being lost is normal, we are just not seeing job creation.  This opinion is confirmed by global outplacement consultancy Challenger, Gray & Christmas whose September 2010 report headlined:

The pace of downsizing remained virtually unchanged in September as employers announced plans to cut 37,151 jobs during the month; a seven percent increase from the 34,768 job cuts reported in August.

The September figure is the second lowest of the year and comes on the heels of the lowest monthly job-cut total since June 2000 (17,241).  Last month’s total was 44 percent lower than the 66,404 job cuts announced in September 2009.

“The low job-cut numbers we are seeing in almost every sector do not necessarily translate into increased hiring.  There is hiring going on in the economy, but it is not enough make a discernable dent in the number of unemployed,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.

“Government employers – at the national, state and local levels – are typically big contributors to job creation, not only through their own hiring, but also by purchasing goods and services from the private sector.  Unfortunately, this massive part of the economic engine simply is not firing on all pistons.  Meanwhile, employers in the private sector have the cash to spend on new equipment and employees, but are waiting for demand to increase enough to warrant the investment,” he said.

More business spending may occur in the coming months, according to one survey.  In its third-quarter CEO Economic Outlook Survey, the Business Roundtable, an association of chief executive officers from the some of the nation’s leading companies, found that 49 percent of its members expect their companies to increase capital expenditures in the next six months.  That marks a vast improvement from a year when only 21 percent of CEOs were expecting to increase capital spending.

However, demonstrating just how tenuous the recovery is, the same survey found that 66 percent of CEOs expect their company’s sales to increase in the next six months, down from 79 percent the previous quarter, and only 31 percent foresee increased hiring.

“Employers appear poised to hire.  Some people have expressed concern that hiring may never take off due to the fact that companies have learned to be leaner and meaner and will simply operate with smaller workforces from now on.  However, increased sales will eventually compel companies to hire or risk being unable to meet rising demand.  We just are not there, yet,” said Challenger.

We will wait for the BLS jobs report this Friday.  Between these two pieces of data, we know government is down 11,000 jobs in September, and the private sector is down 39,000. Calculated Risk believes the census layoffs will add another 75,000 job loses.

Because of methodology, the BLS data is quite noisy – but ADP uses real payroll as a basis of their projections.  As any small business owner knows, you use a payroll service for payrolls.  My bet is on the accuracy of the ADP data.

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