January 31, 2018

January 2018 ADP Employment Report (013118): +234K Private-Sector Jobs Added (See Conference Call Notes; Updated)

Filed under: Economy,Taxes & Government — Tom @ 8:35 am

FROM ADP:

Private-sector employment increased by 234,000 from December to January, on a seasonally adjusted basis.

From the press release:

“We’ve kicked off the year with another month of unyielding job gains,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Service providers were firing on all cylinders, posting their strongest gain in more than a year. We also saw robust hiring from midsize and large companies, while job growth in smaller firms slowed slightly.”

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market juggernaut marches on. Given the strong January job gain, 2018 is on track to be the eighth consecutive year in which the economy creates over 2 million jobs. If it falls short, it is likely because businesses can’t find workers to fill all the open job positions.”

Expectations were for +190K.

Prior-month revisions:
- December — Was 250K, now 242K.
- November — Originally 190K, revised in Dec. to 185K, now 206K.

CONFERENCE CALL NOTES:

Mark Zandi: Job growth was broad-based. “Rip-roaring.”

We need to focus on how tight the labor market is getting. The under-employment figures are very low. Recession 12-1 ratio of underemployed to open positions. Now it’s 3-1.

Unemployment will go under 4 percent, and to mid-3s by end of 2018, only seen three times (mid-1960s, late-1990s, and Korean War era). Unemp rate is under 3 percent in placees throughout the country. Some in the 5s in California, but it’s tight pretty much everywhere.

This is resulting in stronger wage growth, even tho BLS isn’t showing it. Internal ADP data says 5% annual for people staying in jobs and 15% for people moving to new ones.

West and South have strongest wage growth. Services wage growth is soaring. Small cos are seeing faster wage growth, maybe indicating small biz is having a hard time holding onto people.

Financial services and info services are seeing big increases. Millennials are seeing 20%-area wage increases in job moves.

Inflation feels like it’s ready to pick up and interest rates going up. Entering stage of cycle when things overheat. Fed meeting today needs to signal interest rates to keep economy from going too hot. By mid-year, growth will be strong. We’re in rarefied territory. Going to be hard to land this plane on the tarmac gracefully.

Enjoy this while we can.

Q&A:

- ME — Full employment vs. past claim of 5.5 percent. We are close to or ar full employment. Rate was thought to be higher short-term previously because of impediments, but ST and LT views on full employment have converged. His view now: “We’re there.”

- Chris Rugaber, AP — Should we expect employers to drop requirements (i.e., lack of college degree, etc.), conversion to FT employment? Zandi: Businesses will have to hire less qualified people and train them. Companies will invest more in labor-saving technology (has caused productivity weakness in recent years). Multinationals will hire more people overseas, esp because of immigration issues. Companies will really focus on HR and retention issues to keep existing workforce happy and productive, which hasn’t been a focus for many years. Quit rates are about as high as they can get. Self-employment will drop; it’s a safety valve in weak labor markets.

-  ME – BLS number on Friday. Should be 250K at least. He can’t square ADP vs. BLS circle, and he thinks ADP is closer to being right. ADP estimates have been less volatile and are closer to the underlying trend. Bottom line: Labor market is strong.

-  Michael Cohen, Accounting Today: Tax cut effect on labor market. Difficult to discern, because labor market was strong and tight without tax cut, and Jan. 1 min-wage increases in several states. Having said that, it is having some impact, and probably already. Has a hard time believing that 3 million workers got bonuses, etc. from tax cut (even tho companies granting them have all credited the tax law!). Thinks tax cut won’t add much to economic growth (a couple tenths of a point).

___________________________________

UPDATE, Feb. 1: To be clear, Zandi did say that full-employment was a 5.5 percent unemployment in September 2014, as I reported in my September 9 column at PJ Media:

… when the call opened up for questions, I asked him what he thought the unemployment rate would be at the end of 2016 when we hit full-employment nirvana.

I was stunned at the answer: 5.5 percent.

He asserted that full employment was commonly regarded as 5 percent last decade — … but that the economic damage caused by the recession had upwardly moved that standard to 5.5 percent.

As I noted then, the lowering of the bar by attempting to raise the definition of the full-employment unemployment rate was done “to avoid having to discuss the welfare state’s pervasive work disincentives and their own Keynesian policies’ utter failure to satisfactorily revive the job market.” Remember, this was written over five years after the official end of the recession, when the unemployment rate (as of August 2014) was still over 6 percent.

UPDATE 2, Feb. 1: The ADP-BLS private-sector jobs difference remains a huge issue. Even Zandi referred to it without direct prompting after I asked my opening question (my question only concerning the likelihood of a strong BLS number considering that ADP was nearly 100K greater than BLS in December).

Pending revisions in Friday’s BLS report, ADP shows 2.553 private-sector jobs added in calendar 2017. BLS shows 2.013 million. That 540K difference is huge, averaging 45,000 per month, and is unexplained.

In the conference call, Zandi stated that he believes ADP is closer to the mark. It would make sense that ADP is more likely correct, because it starts with its own aggregated client data, putting it in a better position to detect small business formation and employment at newly-formed businesses than BLS.

The consequences of ADP being right are pretty significant. It would blow up the current “yeah, job growth has continued, but at a slower pace” media mantra.

ADP’s figure, if it prevails, would be 514K jobs more than were added in 2016, would be the third-highest annual figure seen since the end of the recession, and would be 144K above the 2011-2016 average of 2.409 million — all achieved after the smart people had said a year ago that unemployment had come down about as far as it ever would.

Estimates for Friday’s BLS report as of before ADP’s release were that it will show 188K payroll jobs added, which would in normal circumstances mean about 180K-185K were added in the private sector.

The 234K ADP reported on Wednesday for January 2018 — yet another projected difference of about 45,000 — has to make one wonder when the dam is going to break at BLS — or, if it’s really happening, how long BLS’s sandbagging of the jobs data will continue.

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3 Comments

  1. To believe the current unemployment #s as true you would have to discount the millions of people on SNAP and OSDI.

    There is one thing Zandi and I will agree upon, that is the change in paradigm for employers regarding training. For the last 8 years they could cherry pick the over qualified, that opportunity is quickly disappearing. Now a new paradigm has to be embraced, that of training those who “could” do the job instead of lazily demanding credentials as the opening bid.

    Remember our discussion on the handicapped when it came to the minimum wage, the people on OSDI are a huge untapped resource and more importantly, getting them to work means a reduction in the cost of entitlements. If there was ever a moral component to work, this is where we should shine, and shame lazy, cheapskate managers into developing the work force. It was the liberals whom were polled as to what they would do with their tax cut (keep it for themselves) and hundreds of corporations shamed them by giving bonus and raise to their work force.

    Trump eluded to this need of training in the SOTU. Shame the greedy self serving liberal cheapskates until they cry.

    Comment by dscott — January 31, 2018 @ 2:26 pm

  2. Don’t disagree at all. The point of my question was to call Zandi out for his 5.5 percent full employment metric 3-1/2 years ago. He said he didn’t remember 5.5, but he did remember using 5.

    Your point about the handicapped is interesting timing, given the post I’m working on.

    Comment by Tom — January 31, 2018 @ 4:24 pm

  3. [...] Press posted a prediction of 175,000 jobs added per FactSet in a Wednesday dispatch covering the January ADP employment report, which showed 234,000 jobs added in the private-sector. Update: An early Friday pre-jobs report [...]

    Pingback by BizzyBlog — February 2, 2018 @ 8:27 am

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