This report measures levels of non-farm private employment based on payroll data from over half of ADP’s U.S. business clients. ADP is one of the world’s largest providers of business outsourcing and human capital management solutions. The data represents about 24 million employees from all 19 of the major North American Industrial Classification private industrial sectors. The ADP index is considered to be a good leading indicator of what the actual Bureau of Labor statistics Employment Report will show when it comes out later in the week.
According to ADP, private sector employment increased by 119,000 jobs from March to April, while the March report, which reported job gains of 158,000, was revised downward to 131,000 jobs. About 64 percent of these jobs were added by firms with less than 500 employees. This was not a particularly good number, with service job increases of 113,000 representing the weakest pace of growth in seven months, and manufacturing jobs actually falling by 10,000 in April. According to ADP this represents the slowest pace of expansion since September 2012.
The ADP report is important since it tracks the Bureau of Labor Statistics monthly employment report fairly closely, which comes out three days after the ADP announcement. Economists use the ADP national employment report to improve their forecasts prior to the release of the BLS data. That said, the ADP report reflects that company’s business and can vary from the actual numbers put out by the BLS. It is but one of 40,000 different economic indicators put out on a regular basis and used in various forecasting models.
The grim figures in the ADP report for April were not precisely reflected in the Labor Department’s numbers that came out the following Friday. In fact, the monthly jobs report actually beat most expectations with the unemployment rate falling to 7.5 percent. That said, the overall employment situation continues to be soft and most of the decline in the unemployment rate has been due to people leaving the labor force. Also, a large percentage of the job growth in April was due to a jump of 278,000 in part-time employment.
The overall jobs picture continues to reflect slow business growth and low levels of investment. Without something to jog the economy, this is likely to continue for at least the next year. Low interest rates have not encouraged new business investment but rather speculative flows into financial assets. The resulting bubble in the equities market is providing investors with better returns than new and potentially risky ventures such as opening stores, expanding factory lines, or constructing new homes. The poor labor market may also reflect a shift from the open economy to the underground economy since the cost of regulations and taxes makes business start-up more difficult. The good news for existing businesses is that this will keep competitive pressures to a minimum and should allow companies to have more freedom to raise prices without greatly threatening volumes. The bad news is that slow growth will continue to put pressure on government revenues suggesting that the resurgence in tax bills may continue through the next cycle.