ADP Job Loss Estimates Paint a Gloomy Picture

By Dirk van Dijk

ADP (ADP), the largest payroll processing firm in the U.S., has come out with its estimate of job losses in June for the private sector. It is not a pretty picture, with the economy shedding 473,000 more jobs in the month. This was far worse than the 394,000 consensus expectation.

On the silver-lining side, the May number was revised to a fall of 485,000 jobs from the initial estimate of 532,000. This moves the May ADP data somewhat closer to the BLS data (June due out tomorrow) of 345,000 jobs lost in May. Also, while the June ADP number is higher than expected, it is the smallest absolute number of job losses since September. I can’t say that I am shocked by the ADP number given that initial claims for unemployment insurance have consistently been running about 600,000.

The ADP and BLS numbers do not match up exactly, for starters, ADP only shows private sector jobs while the BLS numbers include government jobs as well. That should not make a huge difference this time around. While the Federal government probably added quite a few positions in June -- mostly for the Census -- State and Local governments are under severe financial stress (see this post), and job losses there will offset any Federal gains.

On the other hand, even with the revision, there is still a big gap between the BLS and the ADP numbers. ADP provides a clue as to what the BLS will report tomorrow, but it is not always the best indicator out there. While the BLS numbers will continue to be the official ones, the ADP numbers do not have the Birth/Death adjustment that the BLS numbers have -- an adjustment that has consistently been working to lower the job loss totals, and which I find very hard to take seriously.

Digging further into the details, the job losses were about equally split between the goods producing sectors which lost 250,000 jobs, including 146,000 in manufacturing and 97,000 in construction, and the service sector which lost 223,000 jobs. This is the 40th straight month that the country has lost manufacturing jobs. Of course, there were far fewer goods producing jobs to start with than service sector jobs, so on a percentage basis, it is manufacturing and construction that continue to be the hardest hit in the downturn.

Job losses were felt in all-sized firms as well. Large businesses (>500 employees) dropped 91,000 jobs, while medium sized (>50,<500) firm payrolls fell by 205,000 and small businesses employment fell by 177,000 in the month.

Increasing unemployment will mean less income which will keep retail sales weak, particularly of discretionary goods and services. A good example of this is travel, causing hotel companies like Starwood (HOT) and Marriott (MAR) to have much lower occupancy rates, especially in their more resort oriented destinations.

It also makes it much more difficult for people to pay down their existing debts, meaning that more credit card defaults are likely, which is obviously not good news for the likes of American Express (AXP) and Capital One (COF).

Comments

[ain't no fo...:]

"While the BLS numbers will continue to be the official ones, the ADP numbers do not have the Birth/Death adjustment that the BLS numbers have -- an adjustment that has consistently been working to lower the job loss totals, and which I find very hard to take seriously."

Good article and I totally agree with your birth/death comments... we're in the midst of the worst and longest recession since the G.D., and yet month after month our economy magically generates a couple of hundred thousand net new jobs thru new business formations in excess of business closings.

Hmmm... what is that statement about "figures don't lie, but liars figure"?

Jul 01 02:40 PM

[conceptwizard:]

Many families are able to remain financially afloat by running down their savings and cutting back their spending to try and avoid bankruptcy. This diversion of income to pay creditors explains why retail sales figures, auto sales and other commercial statistics are plunging vertically downward in almost a straight line, while unemployment rates soar toward the 10% level. The ability of most people to spend at past rates has hit a wall. The same income cannot be used for two purposes. It cannot be used to pay down debt and also for spending on goods and services. Something must give. So more stores and shopping malls are becoming vacant each month. And unlike homeowners, absentee property investors have little compunction about walking away from negative equity situations – owing creditors more than the property is worth.

Jul 01 02:41 PM

[Mad Hedge F...:]

this is going to be the last place to recover. I spent the evening with Dr. Janet Yellen, the president of the Federal Reserve Bank of San Francisco. She thinks that thanks to the government’s tax cuts and spending programs, we will be out of the recession by the end of this year. After massive inventory liquidation, the auto industry in particular is poised for a rebound. Financial markets are now in better condition than we imagined possible six months ago. However, the pace of the recovery will be frustratingly slow, and it could take several years to return to full employment. Since the majority of the Fed board members feel that inflation will be stuck at 2% for years to come, deflation presents a greater risk than inflation. We are not by any means out of the woods yet. Rising energy prices and interest rates are a potential drag on the economy. Commercial real estate is at the top of her worry list, as falling rents and capital values could create a downward spiral, further impairing the banks. China’s wishes for an alternate reserve currency are impractical. Answering questions as only a UC Berkeley professor can, she further confirmed my belief that we are looking at an “L” shaped recovery at best (see www.madhedgefundtrader... and www.madhedgefundtrader... . However, she did pour some cold water on my idea that the TBT has further to run. “Inflation running up to untoward levels doesn’t make any sense,” she averred.

Jul 01 03:17 PM

[Roger Knights:]

"we're in the midst of the worst and longest recession since the G.D."

That suggests a name for the current contraction: "GD2"

What do people think of it?

Jul 01 08:16 PM

[PlainJane:]

Two point oh, you mean.

Jul 02 12:45 AM

[WS1835:]

LMAO....... Depression 2.0 it is.....

Jul 02 12:06 PM

[Ted Hurlbut:]

Increasing unemployment certainly will moderate any gains retail sales are able to make. Still, look for retail sales to begin to recover in Q4, when the same-store comps turn more favorable, despite the headwind.

Jul 02 04:03 PM