The July jobs report is a giant question mark. It won’t capture the most recent deterioration in the labor market, but it could reflect some of the economic impact from reinstated containment protocols in states experiencing COVID-19 flare-ups.
If the ADP amuse-bouche (as it were) is any indication, the market could be in for an underwhelming print come Friday.
US firms added just 167,000 jobs last month, ADP said Wednesday. That is laughably short of consensus, which was looking for 1.2 million. The most pessimistic estimate from more than three-dozen economists was 200,000. April’s debacle reset the y-axis, meaning July’s gain is barely visible (if you squint, it’s in orange below).
Perhaps unsurprisingly, June’s print was revised sharply higher to 4.3 million, marking the second consecutive month of dramatic revisions. May’s figure was revised up as well.
The breakdown for July shows that virtually all of the gain came in the services sector, which is good news, but the 166,000 positions added is nowhere near the 2 million seen in the previous month. Jobs were shed in financial services.
ADP says 8,000 construction jobs were lost in July, along with 1,000 in mining and natural resources. That was offset by a 10,000 gain in manufacturing, for a net 1,000 jobs added in the goods-producing sector.
Midsized firms shed 25,000 positions last month. Gains were concentrated in large firms, which added 129,000 jobs. Firms with 1-49 employees hired 63,000 people.
Equities didn’t appear to be all that perturbed by the miss, perhaps because most market participants have simply decided that the parlor game which is NFP guesswork has been rendered entirely futile in the post-pandemic environment. In that context, ADP data which clearly suggests that some projections for Friday’s jobs report are woefully offsides could be written off as largely meaningless. After all, ADP proved a poor guide ahead of the last two jobs reports.
Still, this isn’t good news. Like stubbornly elevated jobless claims, the ADP report speaks to possible deterioration in the labor market as states move to pause the re-opening push in recognition of the worsening epidemic.
“This will surely weigh on investors’ expectations for Friday’s BLS data to show a strong continuation of jobs growth”, BMO remarked, in a quick reaction. “The 1033k miss is by far the largest disappointment in ADP history”.