ADP Employment Number Bad – And the Equities Markets Rejoice

ADP (the largest payroll provider in the USA) says USA non-farm private payrolls increased 91,000 in August 2011 – and revised revised down the June data from 114,000 to 109,000. In addition, Outplacement agency Challenger, Gray & Christmas, Inc. data continues to show a layoffs well over last year’s levels.

Although this positive jobs growth data has many relieved that a recession is not occurring, the data itself has very negative trends in small and medium sized business which historically creates most of the new jobs (analysis here).

Overall, Econintersect continues to be concerned as employment growth is well below the labor market population growth, and the trend lines this year are indicating the situation is worsening.

Note that manufacturing jobs month-over-month growth is negative – and have been negative for 3 of the last 4 months.

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.

The BLS uses a birth-death model for small business growth, and the ADP numbers are based on actual extrapolated data.  As small business is declining, it may be that the BLS will overestimate small business job growth.  I would expect the BLS numbers to be higher than ADP.

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 August 2011 economic forecast, we estimated non-farm payroll growth at 145,000, 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 to be released Friday.  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 17 months past the post recession turning point in employment.

This Friday we will see the BLS August employment report.

Outplacement agency Challenger, Gray & Christmas, Inc. said layoffs in August were better than a 16-month high of 66,414 seen in July – but their statement ignores the that the year-over-year percentage surge in layoffs is the worst this year.  John A. Challenger, chief executive officer states:

“……while state and local agencies saw fewer cuts in August, they are not exactly out of the woods in terms of the budget issues they face. Many states are still struggling with high unemployment and falling home ownership, which are taking a huge bite out of tax revenues for states and their cities. And most can expect fewer federal dollars that are needed to prop up their finances,” he said.

“Meanwhile, the private sector is still being hampered by low
consumer and business spending. While we do not see any indication of a sudden resurgence in private-sector job cuts, conditions definitely are not ideal for hiring. We expect hiring to remain slow through the end of the year and into 2012,” said Challenger.

“That is not to say there is no hiring. Government surveys of
employers show that they are hiring more than four million new workers per month. It just so happens that employers are losing about four million workers each month to layoffs, terminations, retirements and other voluntary and involuntary departures. As a result, the net change in employment is not very impressive, but it is important for job seekers to realize that there are opportunities and that they should not give up because of some negative economic reports,” he noted.

August is the third month in a row that 2011 has seen more job cuts than the corresponding month a year earlier.

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