August 30, 2017

August 2017 ADP Employment Report (With Conference Call Notes): 237K Private-Sector Jobs Added, June and July Revised up by 57K vs. Original Releases

Filed under: Economy,Taxes & Government — Tom @ 9:02 am

Prediction: Yahoo’s economic calendar: 185,000 private-sector jobs added.

HERE IT IS, an expectations-smasher:

Private-sector employment increased by 237,000 from July to August, on a seasonally adjusted basis.

From the press release:

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market continues to power forward. Job creation is strong across nearly all industries, company sizes. Mounting labor shortages are set to get much worse. The initial BLS employment estimate is often very weak in August due to measurement problems, and is subsequently revised higher. The ADP number is not impacted by those problems.”

Prior months:

  • July — was 178k, now 201k
  • June — originally 158K when released, now 192K

Conference call notes:

MARK ZANDI: Another impressive report. Very broad-based. Goods-producing was very strong (+33K, consisting of +16K manufacturing, +18K construction, and -1K mining). Underlying job growth is strong.

August BLS numbers might not conform, but its history is one of initial weakness revised upwards. Why? Response rate from large companies is lower because of low large-company responses, making data incomplete. ADP survey is more representative of companies out there, while BLS tends to be biased towards larger companies.

Expects significantly softer BLS by 50K-100K on September 2 (this Friday).

No significant headwinds right now, vs. 2009-2012 deleveraging, then European debt crisis, fiscal austerity during 2011-2013 and shutdowns hurt (fiscal brinksmanship), collapse in oil prices, China issues.

Since early 2016, things have stabilized, and there are no significant headwinds. (no mention of deregulation?)

Debt limit discussions loom as a potential problem.

Job growth will slow. We’re pretty darned close to full employment. Underlying labor force growth is less than 100K. So prepare for 100K per month results sometime down the road.

Expects construction worker shortage in Texas because that sector is already tight on workers.

Predicts Harvey will not have a meaningful impact on national jobs data (10K-20K in a few months).

QUESTIONS: ME on full employment when so many states are in the low 3 percent range — ANSWER: Be very careful on individual states. States like WI, IN and IA with low-3 rates are rural, and when jobs disappear, people just move. (Huh?) Still thinks full employment is 4-plus percent nationally (despite claiming it was 5.5 percent three years ago because of permanent damage to the economy caused by the recession).

“Patricia” from Bloomberg: Wage pickups, trade, BLS downward August bias. ANSWERS: BLS has problems with August since the recession. Very weak initially, but gets revised higher. What drives it is debatable. It may be residual seasonality, schools are all starting earlier every year, can’t totally figure it out. Wage growth is picking up. Employment cost index is slowly accelerating. But wage growth won’t end up being as strong as in past because productivity growth and inflation are lower than we’ve seen historically. We should mark down our expectations of wage growth that is considered acceptable.

Aging of population is weighing on productivity and wage growth. We’re going to see slow productivity and wage growth for some time.

Richard Leon from Reuters: Harvey effect, 10-20K job mostly temporary? ANSWER: More construction, landscaping, utilities, engineering, anything related to rebuilding. It may take longer for reconstruction to kick in because of labor shortages. Historically have relied on immigrants to address such market tightness, especially in Texas, which they won’t be able to do this time. (?!!? Expect that to become a media meme if reconstruction has any kind of hiccups.)

FOLLOW-UP Q on unemployment claims: That will likely be lower at first because govt. offices are closed during hurricane, then an upward blip for a while, but then should settle down. Maybe some disruption to industrial production, particularly mining, and perhaps vehicle sales and production (followed by a significant catch-up effect). Oil price disruption may occur, shouldn’t be significant or long-lasting.

SUMMARY: ADP says the economy has added 1.783 million seasonally-adjusted private-sector jobs this year through August. The government’s Bureau of Labor Statistics shows 1.231 million such jobs through July. That’s a stunning 582,000-job gap BLS would have to report on Friday if it were to fully catch up with ADP.

Zandi’s reasoning on historical initial and revised BLS data during August has historical support. More broadly, though, given the huge job gap (284K if comparing ADP to BLS through July, which is still clearly significant), there are three possibilities:

  1. ADP is overstating its numbers (doesn’t seem likely, and Zandi claimed that ADP’s company universe is really more representative than BLS’s).
  2. BLS is understating its numbers, and will catch up to ADP in the next few months.
  3. (sorry, I have to raise this, but it’s a legitimate possibility) BLS, whose former head was a hard-leftist and likely hired a lot of hard-leftists who are still there, is deliberately sitting on upward-revising data it already has which it won’t allow to become official until early next year’s usually under-publicized comprehensive revision.

I think there’s reason to believe that Friday’s BLS number will see an upside surprise, but we’ll just have to see.

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1 Comment

  1. As contrasted with European countries:

    http://www.zerohedge.com/news/2017-08-30/19-european-countries-now-have-negative-interest-rates

    You don’t have negative interest rates because your economy is doing good or great.

    Comment by dscott — August 30, 2017 @ 11:51 am

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