The latest ADP employment report, which showed that the private sector shed more than 500,000 jobs in May, was made worse by revisions to April's numbers, raising concern that the government's own report, due on Friday, may see similar revisions.
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, or ADP, said its employment index showed that 532,000 jobs were shed by the U.S. private sector last month, slightly worse than the consensus for a loss of 525,000. ADP's April numbers were revised lower by 54,000 to a decline of 545,000.
The two-month average is now a loss of 539,000, compared to the February and March average of a 641,000 drop. Ian Shepherdson, chief economist with High Frequency Economics, called this statistic a "significant improvement ... and if replicated in the official numbers it would signal that the worst of the drop in payrolls is over."
Economists currently expect Friday's nonfarm payrolls report to show the U.S. economy shed 550,000 jobs last month, a small increase after a 539,000 slide in April. Since the recession began in December 2007, 5.7 million jobs have been lost, according to government figures from April. That number likely crossed the 6 million mark last month.
The concern for market observers now is not that the May figure will come in worse than expected, but that April's loss of 539,000 will be revised to a much steeper decline. Economists were surprised by the April payrolls report, having expected a decline of 600,000. The figure was also notable in that it broke a four-month streak of more than 600,000 jobs lost.
While Shepherdson argues that the ADP's revision to its own April number "does not necessarily imply the official payroll number will also be revised down," other market analysts disagree.
"When we're in a contracting economy -- and we are still contracting -- the revisions tend to be to the downside," said Paul Nolte, director of investments with Hinsdale Associates. "I would expect to still see a downward revision to the previous month. Until we actually see the economy expand, we will continue to see downward revisions to past numbers."
History is taking Nolte's side. The Labor Department's data has been revised lower for the last 15 consecutive months at an average number of about 93,600. And if that weren't enough, the few recent downward revisions to the ADP employment numbers appear to have presaged ones to the Labor Department's reports.
After ADP revised the February loss to 706,000 from 697,000, the Labor Department revised its own report from a decline of 651,000 jobs to 681,000. Similarly, ADP's November loss of 250,000 jobs was revised a month later to a drop of 472,000. The Labor Department's nonfarm payrolls loss of 533,000 jobs in November was later revised to a drop of 597,000.
Nolte also points out that that the less-than-expected decline in the government's April report is explained by a 72,000 jump in government jobs, which does little to help the private sector. He expects other service-providing numbers, including financials and retail trade, to show downward revisions.
"The reason I say that is because we're predominantly a service economy now," Nolte said. "If you look at some of the manufacturing data, it has flattened out to a degree, but we're still seeing an awful lot of contraction within services, from the banking industry to auto dealerships."
ADP, which touts itself as the top source for the widest range of human resources information, payroll processing and tax and benefits administration, compiles anonymous payroll data for its report but does not include government jobs data.