July 2011 ADP Employment Data Shows Continued Degradation

ADP (the largest payroll provider in the USA) says USA non-farm private payrolls increased 114,000 in July 2011 – and revised revised down modestly the June data to 145,000, from the initially reported 157,000.  In addition, Outplacement agency Challenger, Gray & Christmas, Inc. data showed a sudden burst of layoffs.

This means employment growth is lower than workforce growth, AND the data suggests that the employment situation continues to degrade from post-recession peaks.  Small and medium sized business historically creates most of the new jobs (analysis here).

Econintersect believes the simplistic sampling extrapolation technique of ADP yields a far better picture of the employment situation in real time than the complicated, convoluted Bureau of Labor Statistics (BLS) methodology.

Historically employment is the confirmation that real economic growth is occurring.   As background, many economic factors impact jobs growth.  How many jobs businesses create in any one month is not directly dependent on these economic factors, but on individual decisions.  The impact of all the economic factors is averaged out over many months.

In our July 2011 economic forecast, we estimated non-farm payroll growth at 135,000, and the consensus estimate was for a jobs growth of 100,000.

Because of the differences in methodology, many pundits ignore the ADP numbers – while waiting for the BLS numbers released tomorrow.  Although there can be a low correlation in a particular month, the different methodologies tend to balance out, and the correlations are excellent outside of the data turning points.  We are now 16 months past the post recession turning point in employment.

This Friday we will see the BLS July employment report.

Outplacement agency Challenger, Gray & Christmas, Inc.  said layoffs were at a 16-month high of 66,414 in July.   John A. Challenger, chief executive officer states:

July marks the third consecutive increase we have seen in monthly job-cut announcements, which certainly seems to provide additional evidence that the recovery has stalled. What may be most worrisome about the July surge is that the heaviest layoffs occurred in industries that, until now, have enjoyed relatively low job-cut levels, including pharmaceuticals, computer and retail.

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