May ADP Private-Sector Payrolls: 201,000 Jobs Added (See Conference Call Notes)

Predictions: At Yahoo’s economic calendar — Briefing.com has 220,000 seasonally adjusted additions; the “markets” have 200,000.

The report will be here at 8:15.

HERE IT IS (direct link; press release): It’s closer to the lower end of the predictions —

Private sector employment increased by 201,000 jobs from April to May according to the May ADP National Employment Report®.

… Goods-producing employment rose by 9,000 jobs in May, after adding just 1,000 in April. The construction industry had another good month in May adding 27,000 jobs, up from 24,000 last month. Meanwhile, manufacturing lost 5,000 jobs in May, after losing 8,000 in April.

Service-providing employment rose by 192,000 jobs in May, a strong rise from 164,000 in April. The ADP National Employment Report indicates that professional/business services contributed 28,000 jobs in May, down from April’s 35,000. Trade/transportation/utilities grew by 56,000, up from April’s 41,000. The 12,000 new jobs added in financial activities is double last month’s 6,000.

“The labor market moved back up to the 200,000 jobs added mark in May, a number which has been something of a bellwether for healthy employment growth,” said Carlos Rodriguez, president and chief executive officer of ADP. “We hope that the May number is the beginning of an upward trend going into the summer months.”

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market posted a solid gain in May. Employment growth remains near the average of the past couple of years. At the current pace of job growth the economy will be back to full employment by this time next year. The only blemishes are the decline in mining jobs due to the collapse in oil prices and the decline in manufacturing due to the strong dollar.”

Prior months are now as follows:
- April, 155K (originally 169K)
- March, 175K (originally 189K)
- February, 200K (originally 212K)
- Janaury 220K (originally 213K)

The net change from amounts originally reported so far this year is -33K. That’s not all that bad in the aggregate, but the February-May average of 183K is not all that great, and trails the average of the previous 9 months (246K) by about 25 percent.

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CONFERENCE CALL NOTES:

ZANDI: “Another solid report.” A “pace double of what is necessary to absorb the working-age population.” If we maintain the current rate of growth, the economy will be back to full employment by this time next year.

You can feel this in the improvement in wage growth which “feels like” it’s beginning to pick up. ADP Workforce Vitality data suggests a pickup in wage growth. That will become more evident as the year progresses, which will support stronger consumer spending and perception about the economy.

People still don’t believe that the economy is doing as well as it is. (!!!)

Two blemishes: First, ill effects of collapse in oil prices, which will likely continue for several months at least through the third quarter. Responsible for most of the pullback in avearge monthly job growth.

Second blemish is the surge in the value of the dollar, hurting manufacturing employment. Mfg employment is going down.

In terms of employer size. Early in recovery big companies were doing the bulk of the net hiring. That has turned around, and now smaller companies are the leaders, while large companies are not adding much.

Increasing sense is that the job growth we are getting is not consistent with the rought GDP numbers we are getting. Increasing concern about slow productivity growth, but coming to the view that GDP data is likely understating growth in a consequential way, particularly in investment, particularly IT services (Snapchat and Facebook). BEA is not pickup up value-added and GDP growth in that sector, therefore missing growth (0.25% per annum). BEA will hopefully figure out how to capture that.

I do not believe that productivity growth has come to a standstill as indicated.

I would believe the labor data and not the GDP, esp given the rapid growth in the economy.

Encouraged that job growth is still stalwart.

GDP slowdown is temporary, and we will see a re-acceleration. Would strongly argue that Fed will begin to raise interest rates, not in June but in September. If we are at full employment in a year, wage and price pressures will be strong in late-2016/early 2017.

QUESTIONS:

ME (residual seasonality and second-quarter GDP) — there is strong evidence that BEA has not fully accounted for seasonality. Weather-ports-oil. Thinks there’s something to that (residual seasonality). BEA is having increasing difficulty with that. 2.6% is 2Q15 estimate. Trade will push it up further to close to 3%.

ME (following up with a question about how Web 2.0 “production” isn’t getting picked up, b/c wouldn’t it be reflected in consumption) — Zandi believes that BEA is not getting the deflator right because it’s not adequately accounting for the “Quality and power of goods people are consuming.” (i.e., the deflator is not just for inflation, it’s also for inherent improvements in the quality of goods and services — Ed.)

“Richard” of Reuters (hiring by large multinationals) — Zandi thinks ill effects of energy sector will play out quickly. Surge in value of dollar will play out over time and will weigh on mfg through the remainder of this year and through maybe the first half of 2016. Will mitigate in second half of 2016.

Wage growth is a key tailwind which will start to whip up in the next 12-18 months. Also a stronger housing market, which has found its footing again. Spring selling season is much stronger. Feels like homebuilders are quickening their pace. Expect substantive pickup in SF and MF construction.

We should see stronger growth over the next couple of years.