April 5, 2017

March 2017 ADP Employment Report: 261K Private-Sector Jobs Added, Feb. Revised Down 53K (Also See Conference Call Notes)

Filed under: Economy — Tom @ 7:19 am

Predictions: Per Yahoo’s Economic Calendar, +160,000 to 175,000 private-sector jobs added. That seems like a pretty modest number, given that the past two months have averaged 280,000.

We’ll see here at 8:15 a.m. I will also sit in on the conference call which takes place from 8:30 – 9:00 a.m.

HERE IT ISTold ya:

Private-sector employment increased by 263,000 from February to March, on a seasonally adjusted basis.

From the press release:

“The U.S. labor market finished the first quarter on a strong note,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Consumer dependent industries including healthcare, leisure and hospitality, and trade had strong growth during the month.”

Mark Zandi, chief economist of Moody’s Analytics said, “Job growth is off to a strong start in 2017. The gains are broad based but most notable in the goods producing side of the economy including construction, manufacturing and mining.”

Prior-month revisions:
- February — from 298K to 245K
- January — From 261K to 249K (originally 246K)

The first-quarter average of 252K annualizes to 3 million if sustained.

Overall, a beat vs. expectations, but well over half of it disappeared in downward revisions to the previous two months. The overall picture is quite strong.

CONFERENCE CALL NOTES:

ZANDI: Strong report, on track to create 2.5 million jobs, more than double the rate needed to absorb new workers.

Goods-producing side of the economy (mfg and mining) has seen great improvement. Mining was in doldrums and mfg was soft and construction side. That has changed. Goods side is strong. Resource and mining now adding to payrolls. Mfg is now adding pretty strongly recently, big boost is from global economy. Major trading partners are doing better, value of $ is remaining stable.

The big add recently is construction, with a big boom in construction jobs. Surprised that we didn’t see some weakness in construction in March, because earlier months were helped by mild weather and March was cold. So ADP may be overstating. Construction now adding pretty consistently and it should continue through the remainder of the year.

Service side of the economy adding a lot of jobs, and that’s consistent.

Looks like large companies are doing well again in term of adding employees at a pretty prodigious pace.

Anticipating some slowing because we’re near full employment. At some point, the supply side is going to change and employers will have a hard time finding people. Job adds at double new entrants can’t continue, so he expects slowing in job gains.

Also, Fed is watching and with interest rates ver low and monetary policy accommodative, they’re going to have to normalize their policy with consistent, steady interest rate increases.

Great number, strong by any standard, can’t ask for much more.

ME (ADP Feb. Revisions and trade balance): ADP data changes minor, translation to BLS estimate has variables which can be revised minor, but the larger element is the new model which is more accurate in theory but subject and more sensitive to swings (now being affected by prior BLS revisions). More accurate in terms of predicting the current BLS estimate. (GOAL SEEKING?) We should expect to see more and bigger revisions with the new model.

ME (re trade): Trade won’t be less of a drag, but doesn’t expect it to turn positive. Also, dollar changed by 15% during 18 mos. ended in 2015. US consumer is doing well, and when that’s the case, we’ll tend to import more stuff.

RICHARD YOUNG (re wage pressure, at a fast pace or delayed): Will develop more fully going forward. Over last year, wage growth is roughly 2.5 pct to 3 percent (up from 2 pct in previous years). Expects further tightening and for wage growth to pick up even more. A year from now, expects close to 3.5 percent. In a well-functioning economy, wage growth should be 3.5 percent (less 2 percent inflation, leaving 1.5 percent real growth).

We may blow past that given the current circumstances. In parts of the world where things have tightened, wage growth hasn’t met what typically happens. Possible contributor: continued weak productivity growth constraining wage growth. Doesn’t think that will happen here. This labor market is tight, it’s going to get tighter, and businesses are going to have a harder time finding labor. Labor shortage is going to exacerbated by fewer new immigrants and departing immigrants.

If (net) immigration continues at the previous pace, labor force growth will continue. If it doesn’t, labor force growth will come to a halt. (Zandi lays down a marker — Ed.)

RICHARD YOUNG (what sectors affected): Zandi thinks it’s going to be a broad-based acceleration in wages. There will be pockets of weakness, but overall very tight, and will be defining characteristic of the economy over the next several years. First time that will be true on a sustained basis since the late-1990s.

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