January 6, 2016

December ADP Private-Sector Employment: +257K Jobs Added, Topping Expectations Substantially (Also See Conference Call Notes)

Filed under: Economy,Taxes & Government — Tom @ 8:39 am

UPDATE, 9:15 A.M.: Good question at Zero Hedge:

Our question is simple – with ISM Manufacturing Employment at post-recession lows and US Manufacturing PMIs at post-recesssion lows, and inventories-to-sales ratios at post-recession highs, why are goods-producers (according to ADP) hiring at such a frantic pace?

Zandi’s response, based on the conference call notes below, would be that he thinks the government is underestimating productivity growth. (Perhaps it’s conceit, but we believe that Zandi is looking at yours truly’s monthly ADP posts, because he was careful not to go into his weak “well, computers are so much more powerful and do so many more neat things now, and social media ‘output’ is understated, and the government’s statisticians aren’t catching that” shtick he tried last month.)

However, since Zandi mentioned the uncertainty involved in ADP’s year-end payroll “purge” during the conference call — the purge hasn’t happened yet, because W-2s aren’t out and other year-end payroll items are clearly not done), we need to be on the lookout for a significant revision to today’s number, and it would appear that the risk of a big revision next month would be to the downside.

_________________________________

From ADP:

Private-sector employment increased by 257,000 from November to December, on a seasonally adjusted basis.

Expectations were 190K-200K.

From the press release:

Mark Zandi, chief economist of Moody’s Analytics, said, “Strong job growth shows no signs of abating. The only industry shedding jobs is energy. If this pace of job growth is sustained, which seems likely, the economy will be back to full employment by mid-year. This is a significant achievement, given that the last time the economy was at full employment was nearly a decade ago.”

Prior months (going backwards) are now 211K, 173K, and 199K. In November’s report, Nov. and Oct. were 217K and 190K, so this month’s report had 23K in downward revisions.

CONFERENCE CALL NOTES:

Mark Zandi, Moody’s — Breadth of job growth is encouraging. Wage growth is picking up. Expects to see another jump im Friday’s jobs report. ADP data is also showing similar increases, both for movers and current holders staying put. Labor market is tightening.

Energy sector drag will continue into first half of 2016, if oil stays at around $40. From about +200K/yr to -150K/yr.

Trade-sensitive manufacturing is struggling, but there aren’t a lot of jobs there to lose. From +25K/yr to -25K/yr in past two years. Weakness will continue, given ongoing trouble in emerging markets.

Three key links to U.S for international events: Trade (negative), financial markets (negative — most potent and uncertain link, negative wealth effect could affect consumer spending), and capital flows (positive, coming into United States b/c of “flight to quality”). International events aren’t an existential threat to US equity markets.

Fair to say today’s number is good, see no signs of slowing. Hard not to be optimistic for econ’s coming prospects.

QUESTIONS:

Chris Rugaber of AP (How are employers able to add all these jobs, given other negative news we’ve seen) — American consumer is still powering growth, spending decently if not strongly. 3 percent YOY pace, about as good as it gets. (historically WRONG — Ed.)

Housing sector is fine. We are seeing continued steady improvement in construction. Vacancy rates continue to decline.

Weakness is almost entirely related to trade and manufacturing. $100 billion more in 2015 than in 2014 (0.6 pct. of GDP). But impact on jobs is relatively modest. Productivity growth has been weak because of widening trade gap (cyclical and not secular force). This will continue during 2016. But there is plenty of juice and momentum and good stuff to continue growth.

Michaal ___ of Accounting Today (about professional business services sector). ADP has a “purge” that takes place at end of the year, which is the result of many month of released employees during previous months, so there is some noise in the December estimate. Prof services probably has the most noise and might be overstated. But there is underlying strength that is broad-based in PBS.

Me (about 4Q GDP, currently 1.7 percent at Moody’s, and 10-year construction revisions) — will settle at about 1.5 percent after today’s trade and other news. Thinks it will be 1.5-2.0% by the time all is said and done.

GDP numbers are understating growth and we will see that eventually (maybe 5 years from now) consistent with job growth. Thinks productivity growth is understated.

10-year revisions to Census data were in home improvement which is tied to retail sales. BEA doesn’t use that data, so no effect on GDP.

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  1. [...] Analytics, whose firm is responsible for preparing the ADP report. Zandi said the following on today’s ADP conference call about the aforementioned “purge” (with a mild bit of paraphrasing): “There is [...]

    Pingback by BizzyBlog — January 6, 2016 @ 4:01 pm

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