ADP Report Shows Labor Market Momentum
This morning’s positive labor market reading provides the market another opportunity to build on Tuesday’s record close. The momentum in this market simply refuses to die down, humbling the doubters amongst us (yours truly included). That said, the tone of recent economic data has been on the positive side, confirming that the economy is in good enough shape.
The February jobs tally from Automatic Data Processing (ADP) came in better than expected this morning – up +198K vs. consensus of +170K. The January tally was revised higher by 23K to 215K. This report is expected to serve as a preview of the non-farm payroll report from the government’s Bureau of Labor Statistics (BLS) coming out on Friday. The consensus expectation is for private-sector job gains of +167K and ‘headline’ gains of +160K. The government sector has been losing 5K to 10K jobs monthly, which will likely accelerate in the coming months as a result of the sequester.
The likely jobs impact of the sequester is in some doubt, with estimates ranging from overall payrolls being lower by 500K to 700K, primarily in the government sector. This would translate to monthly government job losses in the 50K to 60K range over the coming months, though the actual job losses will most likely be much smaller. A greater use of furloughs instead of pink slips will likely show up in fewer hours worked than actual job losses over the remainder of this year. We will have to wait and see what impact the sequester will have on government jobs in the coming months, but the private sector appears to be in healthy enough shape to withstand it.
The ADP report is showing plenty of momentum in small-business hiring, with employers having less than 50 employees adding +77K jobs in February. Medium sized business (less than 500 employees) and large businesses (1000+ employees) added +65K and +57K jobs during February. Goods producing sectors added +34K jobs, while service providing sectors generated +164K jobs. Construction and manufacturing were both positive, confirming what we saw from the employment components of the two ISM reports.
Uncertainty with respect to the extent of negative impact from the Northeast snowstorm on the BLS jobs numbers will likely keep analysts from raising their estimates for Friday. Some estimates put the snowstorm impact to be as high as 50K in the Friday reading. But irrespective of the actual jobs numbers on Friday, it is increasingly becoming clear that the tax hikes and fiscal uncertainty has had no negative impact on actual economic activities thus far. And we see that in the stock market’s new highs as well.
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