While not an exact science, the ADP Employment Report typically serves as an early barometer for the government reported jobs data. Many did not think that the numbers could get much worse in August over July, and judging by the ADP reading this is certainly the case. ADP is calling for a sub-200K-flop on job creation, much like the reading from July. The agency expects that private payrolls will increase by 190,000 in August, which is about 20,000 fewer jobs than the consensus average, and right at the low-end of expectations.
The chart below shows ADP's monthly changes in job creation from September 2013. Shown in blue, the August reading is the 10th sub-200K reading out of the last 24 readings.
One big standout is the fact that ADP revised its initial July estimate even lower and further away from the Bureau of Labor Statistic's initial reading. The new number is now at 177,000 from 185,000 and this some scary foreshadowing for a potentially large downward revision from the BLS as well. The government's original reading was at 210,000 in July and the figure for August is expected to come in at 211,000.
There were a few noteworthy details from the report. Firstly, small businesses, which have less than 50 employees, added about 85,000 in the month compared to large businesses, with over 500 employees, which added 40,000 jobs in August. Small businesses are the backbone of the economy; when they are comfortable enough to hire and seek bank loans, this is a very healthy sign.
Also healthy was the fact that 17,000 jobs were added in the construction sector, largely reflective of the recent rise in demand for new home sales and construction spending. Manufacturing jobs reversed the downward trend and added about 7,000 jobs in August. However, given how dismal the August manufacturing reports were out of the various U.S. Fed Districts, it's likely that this growth was concentrated in the least-weak areas.
Domestically concentrated businesses, as well as those companies with the lightest number of export reliance showed the most resilience during the month. The service-providing sector gains 173,000 jobs in August with a gain of 29,000 in professional & business jobs and 28,000 in trade, transportation and utilities. Heavy inventory builds across much of the country over the summer was likely responsible for the rise in transportation jobs.
Ultimately, investors are fixated on the July revision rather than the new August data since the summer seemingly began well and they would like to hope that the positive momentum will keep going. It is very unlikely that the Fed will follow through on its plan to raise interest rates in September, but will instead be looking further ahead into December 2015. I never thought that the ADP report was the best indicator for government data, however big downward revisions are of concern to me. Especially since most of the manufacturing surveys from August were disappointing.
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