July 2, 2014

ADP: 281,000 Private Sector Jobs Added (See Conference Call Notes on GDP Contraction vs. Job Growth, Additional Updates)

Filed under: Economy — Tom @ 8:49 am

Predictions were in the 205,000 range.

From ADP:

Private-sector employment increased by 281,000 from May to June, on a seasonally adjusted basis.

- Small businesses (1-49 employees) +117,000
- Medium businesses (50-499 employees) +115,000
- Large businesses (500 or more employees) +49,000

“The June jobs number is a welcome boost. The number of construction jobs added was particularly encouraging, representing the highest total in that industry since February of 2006.”

– Carlos Rodriguez, president and chief executive officer of ADP

From the press release:

Goods-producing employment rose by 51,000 jobs in June, up from 31,000 jobs gained in May. The construction industry added 36,000 jobs over the month, more than double the May number. Meanwhile, manufacturing added 12,000 jobs in June, up slightly from last month.

Service-providing employment rose by 230,000 jobs in June, up from 148,000 in May. The ADP National Employment Report indicates that professional/ business services contributed 77,000 jobs in June, up from 46,000 in May. Expansion in trade/transportation/utilities grew by 50,000, up from May’s 36,000. The 11,000 new jobs added in financial activities was about double last month’s number.

“The June jobs number is a welcome boost,” said Carlos Rodriguez, president and chief executive officer of ADP. “The number of construction jobs added was particularly encouraging, representing the highest total in that industry since February of 2006.”

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market is steadily improving. Job gains are broad based across all industries and company sizes. Judging from the job market, the economic recovery remains fully intact and is gaining momentum.”

Conference call summary:

In the conference call, Mark Zandi predicted that wage growth may start picking up, but perhaps not really strongly until 2017-2018 (!).

2014: 2% wage growth; 2015-2.5; 2016 3%; 2017: takeoff.

In response to a question about job growth by occupation, he thought that construction may not be growing because employers are having a hard time finding people with the needed skills.

Essentially, “What’s going on in jobs is inconsistent with what’s happening in GDP, and “something’s got to give.” He thinks it’s GDP.

Three possibilities explaining GDP contraction vs. job growth:
1. GDP is wrong.
2. Businesses not changing their minds on hiring despite Obamacare.
3. Productivity growth has really weakened.

He doesn’t believe that the healthcare contraction is real.

He just doesn’t believe that the economy is weak, and that the narrative told by first-quarter GDP is wrong.


I think explanation number 3 above — weak productivity growth, which is really has been a productivity contraction — is at the very least underappreciated and underestimated.

When you move millions of people move into lower-paying, relatively unproductive jobs (e.g., temporary help services, food and drinking establishments), and out of areas which are vastly more productive, that has consequences.

So is it possible that first-quarter GDP really did contract in the face of job growth of 200,000 or more per month? Unfortunately, yes.

Is it possible that second-quarter growth won’t be that impressive, or could conceivably go negative, in the face of even larger monthly job growth? Unfortunately, yes.


UPDATE: According to Reuters, the Census Bureau’s report on Factory Orders showed a May decline of 0.5 percent, worse than predictions of 0.1 percent to 0.3 percent declines. The first three paragraphs of the narrative:

A fall in demand for military equipment spurred a drop in new orders for U.S. factory goods in May, but signs of a healthy appetite for investment in the private sector pointed to broader strength in the economy.

The Commerce Department said on Wednesday new orders for manufactured goods decreased 0.5 percent. That was a steeper drop than the 0.3 percent decline forecasted by analysts.

Stripping out military wares, new orders rose a modest 0.2 percent.

The two bolded passages contradict each other, because 0.2 (NOT inflation-adjusted) is a not a sign of “a healthy appetite for investment in the private sector.”

Apparently, they don’t even care if what they write makes sense any more.

UPDATE 2: Then there’s this from yesterday on construction spending, with the Census Bureau report again not accessible —

Why Was Construction Spending So Weak in May?

Some sectors of the economy are apparently still recovering from the impact of the Polar Vortex that brought the coldest winter in four years to U.S. Even as the economy is set to bounce back to a more normal growth trajectory in the second-quarter, spending on construction activities, for example, has shown only a cautious increase.

Construction spending in May advanced a paltry 0.1 percent to $956.1 billion, according to data released by the Census Bureau. This was in spite of healthy month-on-month rise in spending on non-residential and public construction. Spending on non-residential construction rose 1.1 percent in May to $328 billion and total public construction spending was up 1 percent to $273.3 billion.

The major culprit for the drag in the headline number has been reduced spending on home building, which contracted 1.5 percent to $355 billion in May on a seasonally adjusted basis. Spending on new single family homes were down 1.4 percent to $187.5 billion from $190.1 billion in May.

The answer to the question in the excerpt’s title is: Because the economy is NOT bouncing “back to a more normal growth trajectory in the second-quarter.”

UPDATE: Finally, we have the latest median household income estimate from Sentier Research

Median Household Income for May 2014 — $53,385

According to new estimates derived from the monthly Current Population Survey (CPS), median annual household income in May 2014 was $53,385, an increase of $240 that was not statistically significantly from the April 2014 median of $53,145 but 3.3 percent higher than the post-recession low-point reached in August 2011.

Sentier’s reported figures are inflation-adjusted.

Meanwhile, in the 10 most recent quarters, including the recent contraction, real GDP has grown by 5.0 percent.

It’s not unreasonable to contend, despite job growth of 214,000 per month so far this year, that GDP still might fallback to more closely reflect what has been happening with incomes.


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