ADP Reports Loss of 250,000 Jobs

ADP reported a decrease of 250,000 jobs on private-sector payrolls, much more than the consensus forecast for a decrease of 205,000. It is important to note that ADP has been reporting fewer job losses than the Bureau of Labor Statistics has in recent months. From January through October, ADP reported job losses averaging 39,000 a month, 79,000 fewer than the monthly losses reported thus far by the BLS. Over the past five months, the miss was about 120,000.

These data will help further prepare the financial markets for the possibility of a weak jobs report on Friday. Amazingly, the consensus is for a decrease of 325,000, a vast change from a few months ago when expectations generally were for monthly decreases of about 75,000 per month. This clearly shows that the preparedness for Friday's data is unusually high.

Market participants will likely add -100,000 to ADP's estimate, which at -350,000 would put the payroll loss at its widest since May 1980, when payrolls fell 431,000. The largest decline since then was 343,000 in July 1982, which was a month before the start of a long-winded bull market in equities.

I said months ago that the economy was set to enter a dark period marked by deteriorating employment conditions, and market prices have been reset accordingly since then. The next step for the markets is to determine the depth and duration of the economic downturn. Once this happens, investors in riskier assets such as equities and corporate bonds will look over the valley and ignore bad news, and riskier assets will post sustainable rallies. Not now, but the time will be at hand when the deterioration in the economy ebbs. Data need not get better to spark a rally; they need only stop getting worse.

Risk assets such as equities and corporate bonds have tended historically to begin recovering in the middle of recessions, which to some would make the current period seem a safe time to begin buying, but the depth and the duration of the current recession remains overly unclear. This will delay a meaningful recovery in risk assets.