Is The US Labor Market Back? Wild Revisions And Rampant Ambiguity

In some sense, May’s ADP report presaged the “shocking” upside surprise in nonfarm payrolls that rocked the market 48 hours later.

If you recall, ADP came in much better than expected last month, although it still showed US firms cutting 2.76 million positions, versus the 2.5 million the economy “officially” added according to the jobs report. I suppose you could say that given the size of the beat on May’s ADP headline (-2.76 million versus an expected loss of 9 million), the market should have been better prepared for the blowout NFP number two days later. And yet, losing nearly 3 million jobs is something quite a bit different from adding 2.5 million, so you can forgive folks for their incredulity.

Fast forward a month, and ADP says firms hired 2.37 million people in June. That’s below consensus, which was looking for 2.9 million, but I’m not sure that’s going to matter all that much given the prevailing level of ambiguity.

May’s headline was revised to a gain of 3.06 million, which puts it in line with May’s NFP report. Again, I would emphasize that this revision is massive.

“While normally we would use ADP as a highly correlated proxy for Thursday’s NFP figure, that relationship is certainly noisier than usual in the current regime, if only because of methodological differences in how the two surveys are conducted”, BMO’s Ian Lyngen, Benjamin Jeffery, and Jon Hill wrote Wednesday.

A look at the breakdown shows the services sector added more than 1.9 million jobs. Almost a million of those were in leisure and hospitality.

In the goods producing sector, construction jobs bounced back strongly to the tune of 394,000. Mining and natural resources shed 26,000 positions. Manufacturing gained 88,000.

Glancing at the details on hiring by size of business, the gains were spread pretty evenly in June. Small businesses added the most positions, with firms of 1-49 employees showing a 937,000 gain.

“Small business hiring picked up in the month of June”, Ahu Yildirmaz, vice president and co-head of the ADP Research Institute said, in the accompanying press release. “As the economy slowly continues to recover, we are seeing a significant rebound in industries that once experienced the greatest job losses”, Yildirmaz added, noting that “70% of the jobs added this month were in the leisure and hospitality, trade and construction industries”.

That’s good news, but this report is obviously difficult to parse. There are so many moving parts and potential distortions that getting a “clean” read on things is well-nigh impossible.

And if demand falters amid new lockdowns, tax payments due in July, and the expiration of extra unemployment benefits (which could mean the unemployed spend less, thereby imperiling the jobs of those who have been rehired), it could all be in jeopardy.

“The reality is that – nearly regardless of the actual data – the narrative surrounding the jobs market is unlikely to shift”, BMO said Wednesday morning. “Things are bad, but improving, and will be improving for quite some time”.


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