Strong ADP Data Suggest Last Month's Jobs Number Was a Fluke
ADP's (ADP) - Get Report employment report for June is in and it suggests May's weak jobs report was a fluke.
Private companies added 172,000 jobs last month, beating forecasts; ADP said 168,000 jobs were created in May. Also, the number is far higher than the 38,000-job gain for May reported by the Labor Department, a result that sent shock waves through markets and helped convince the Federal Reserve to delay its expected path of interest rate hikes this year.
"Last month's very weak number was an outlier, a fluke,'' said Mark Zandi, chief economist for Moody's Analytics, which compiles the data for ADP. "Tomorrow's (Labor Department) number should be for close to 200,000. So I think we are back on track.''
Maybe.
Last month's ADP number was also much higher than the official estimate of employment growth, a fact sure to be seized upon by investors who think overseas problems put the U.S. at rising risk of a recession. So, too, might critics seize on ADP's estimates of the composition of jobs growth.
Employers actually cut 36,000 jobs in goods-producing industries in June, with 21,000 positions lost at manufacturers including Boeing (BA) - Get Report and General Motors (GM) - Get Report . Those losses were swamped by 51,000 new jobs in service-producing businesses and another 55,000 in trade, transportation and utilities companies such as American Airlines (AAL) - Get Report and Exelon (EXC) - Get Report , part of a total of 208,000 new service jobs. Financial companies including JPMorgan Chase (JPM) - Get Report added 2,000 jobs.
The biggest gains came at small companies. Businesses with fewer than 50 employees accounted for 95,000 new positions.
"We'll see if it's a better indicator of what happens tomorrow," PNC Financial (PNC) - Get Report Chief Economist Stuart Hoffman said on CNBC. "I do think job growth is slowing down. You're not going to stay at 200,000 a month. I'll call last month an outlier in the degree it slowed down.''
Both Zandi and Hoffman disputed claims by Deutsche Bank that the drop in long-term bond yields points to a 60% risk of a U.S. recession in the near term.
"No. Why?" Zandi said. "There's absolutely no reason for that to be the case."
Both economists have been predicting the pace of job growth will slow to about 160,000 to 175,000 a month, which Zandi argues is enough to keep the 4.7% unemployment rate declining. Point72 Asset management economist Dean Maki says the jobless rate will average 4.4% in the fourth quarter of this year. Slow population growth and the ongoing retirement of the large Baby Boom population limits the number of workers who need jobs.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.