With markets focused intently on political developments stateside, Wednesday’s data was sure to get short shrift.
With that obligatory caveat, ADP was a big miss. Private sector employers shed 123,000 jobs in December. Consensus was looking for a 75,000 job gain.
ADP hasn’t been a good predictor vis-à-vis NFP over the course of the pandemic, but nevertheless, this is potentially disconcerting. It’s difficult to see in the chart (below) due to the sheer magnitude of the labor market carnage during the first lockdowns, but this is the first drop since April.
Revisions to the prior two months were minimal.
A look at the breakdown shows large firms were responsible for the decline. Companies with 500 or more employees shed 147,000 positions.
Small firms saw a 13,000 decline, while midsized businesses actually added 37,000 jobs over the survey period.
Not surprisingly, given the rapid spread of COVID and the associated measures to contain it, the services sector shouldered the burden.
105,000 services jobs were lost last month, according to ADP, with the bulk of the pain coming in trade, transportation & utilities and, of course, leisure & hospitality.
Notably, manufacturing lost 21,000 jobs as well.
This is a bad omen, although it’s not entirely unexpected. Momentum in the labor market was already decelerating prior to the winter COVID surge.
Over the past several weeks, the epidemic has spiraled out of control in the US, leading to record daily infections, fatalities, and hospitalizations. Until the situation illustrated in the figure (below) is under control, employers in the services sector will likely be reluctant to keep adding back positions.
In short: This increases the urgency of stimulus delivery.
If Friday’s jobs report looks anything like ADP and the final results from Georgia cement a Democratic majority in the Senate, you can expect discussions on fresh fiscal measures to proceed at “warp speed.”
“Bad is Good” time.