This morning’s soft private-sector jobs report from ADP (ADP) adds to other recent economic readings that show that the Q1 slowdown has continued into the current period as well. We will know more after Friday’s government jobs report, but consensus expectations of a Spring rebound in the U.S. economy appear too optimistic at this stage.
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The ADP read came in below estimates at 169K for April vs. estimates of about 205K – the second monthly tally under 200K in a row after 11 straight months of coming above that level. Not only did the April jobs tally miss the mark, but last month’s already-soft reading was further revised down. This doesn’t bode well for Friday’s government jobs report the consensus expectation for the BLS report is for ‘headline’ gains of 220K (per Bloomberg.com), which includes government jobs. As such, this ADP report will most likely prompt folks to lower their estimates for the Friday jobs report.
The weakness in today’s report was mostly among large employers and in the goods-producing sectors – small and medium-sized employers and the services sector did just fine during the month. Large businesses (500 or more employees) added only 5K jobs in April. This could be the effect of the strong dollar on multi-national companies, which had been vividly on the display in Q1 earnings season as well.
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Another contributor could be the negative developments in the Energy sector, which has lately been shedding jobs at a rapid pace. The goods-producing sector lost 1K jobs during the month, with construction’s strong gains (up 23K) offset by weakness in the factory sector (lost 10K). The manufacturing weakness reconfirms what we saw in the factory sector ISM survey a few days back.
It is hard to explain away this report solely on weather related grounds — the Q1 slowdown appears to have been caused by more than just bad weather on the East Coast. Weakness in the Energy sector and the impact of the strong dollar on export centric industries seem to be at play as well, and these factors will remain in place even as the weather warms up.
We will know more after Friday’s jobs report, but the tone of recent economic data for the current period is broadly on the weak side, indicating that the Q1 weakness has moved into the current period as well.
This soft data trend can be interpreted favorably from a Fed-policy perspective. But a more enduring positive for stocks would be a strengthening economy, not a delay in the Fed’s tightening cycle.
