ADP’s Employment Report Comes in Weak; What’s Going On?

Here’s the summary:

Nonfarm private employment decreased 79,000 from May to June 2008 on a seasonally adjusted basis, according to the ADP National Employment Report®. The estimated change in employment from April to May was revised down from an increase of 40,000 to an increase of 25,000.

This month’s decrease in employment was broad based across industrial sectors and suggests continued weakness in employment.

Well, the conventional wisdom is that it’s a further harbinger of a really weak report from Uncle Sam tomorrow. Pre-ADP, the CW was a seasonally adjusted job loss of 60,000, according to Bloomberg, which repeated the same mistake the business press routinely makes when reporting on these numbers:

The biggest housing recession in a quarter century and record oil prices are prompting an increase in firings as companies brace for falling demand. The government tomorrow may report that total private and government payrolls fell in June for a sixth decline this year, according to the median forecast in a Bloomberg News survey.

Sorry guys, it’s not an “increase in firings,” it’s “less-than-hoped-for hirings,” as the not seasonally-adjusted numbers from the Bureau of Labor Statistics clearly show (select the top Not Seasonally Adjusted report at this BLS link):

My guess is that June’s actual net hirings will be in the neighborhood of the 500,000 seen in the previous 2 years. I don’t think that increase will be enough to prevent a reported seasonally adjusted job loss, but it’s one that I think will be slightly smaller than predicted.

The first of two wild cards is this: It could be that, if ADP is reflecting the reality out there better than BLS (last month’s discussion as to why that might be the case is here), then BLS will start catching up to the net job gains ADP has shown so far this year:

The chart doesn’t include ADP’s prior-month downward revision of May by 15,000 in its report today. After deducting that, there’s still an ADP v. BLS private-sector job difference of 539,000 (554-15) through May. If the BLS starts catching up to ADP, there will be an upside surprise for June, perhaps even a barely positive number.

The second wild card is that ISM’s Non-Manufacturing Index (NMI) isn’t coming out before BLS’s Employment Situation report. I’d feel better about my guess if I knew that it will stay at or improve on where it was last month (51.7). The Arrogant Pessimists at the Associated Press have a consensus estimate of 50.7 from the Wall Street economists it surveyed. This link predicts 51.0. But ISM’s readings have been coming in higher than predicted for the past few months. If the “experts” are underestimating non-manufacturing strength, they’re probably underestimating employment strength too.

All of that said, if ADP has been more right than BLS has been so far this year, the employment situation may really be starting to deteriorate in states other than known economy-draggers California and Michigan. That, unfortunately, makes intuitive sense to me. Employers, and investors too (as seen by how awful June was in the stock market, where the discounted cash-flow calculations that form the basis for market prices are surely diving), are getting used to the idea that $4 gas isn’t a blip, and that the congressional majority in Washington could care less about doing anything tangible about it — short-term or long-term. In fact, Obama-Pelosi-Reid alliance seems almost happy about it, especially Obama, whose only qualifier is that he wishes that prices hadn’t gone up so quickly.

In fact, I’m inches away from calling their steadfast refusal to expand drilling an election-year, country-be-damned ploy. For now, I think it will be fair to characterize most of anything bad that happens to the economy from this spring on forward as being part of the Pelosi Plunge, perhaps leading to the Pelosi-Obama-Reid Recession.