US private sector employers added 247,000 jobs in April, ADP said Wednesday.
That was far fewer than anticipated. Consensus expected 383,000 (figure below). No forecaster predicted a print below 300,000.
The underwhelming figures could reset expectations for Friday’s nonfarm payrolls headline, but only around the margins. ADP has been a poor predictor of NFP in the pandemic era.
The data included upward revisions to February and March.
April’s headline was the weakest of the recovery, falling two thousand jobs short of the pace seen in December of 2020, when the US was grappling with a vicious third COVID wave.
The miss was attributable to small businesses, which shed 120,000 jobs in April. The figure (below) is trimmed in order to help readers better visualize the scope of April’s decline.
Outside of the original pandemic lockdown collapse, April was the third-biggest decline on record.
Last month, I reminded readers that small businesses aren’t able to cope as well with margin headwinds (including and especially higher labor costs) as large corporates. Recall that S&P 500 margins came into Q1 earnings season loitering near record highs.
I’ve said it time and again: Giant multinationals’ capacity to protect the bottom line in the face of sundry threats may as well be unlimited compared to small businesses, which won’t be able to compete for workers if wage pressures don’t recede.
Sure enough, the color accompanying April’s ADP report underscored the point. “While hiring demand remains strong, labor supply shortages caused job gains to soften for both goods producers and services providers,” Nela Richardson, ADP’s chief economist, said, adding that “as the labor market tightens, small companies, with fewer than 50 employees, struggle with competition for wages amid increased costs.”
Small business optimism, as measured by the NFIB, dropped to its worst levels since April of 2020 in March, when inflation dethroned quality of labor as the most vexing problem in the survey. The net percentage of owners expecting business conditions to improve over the next six months fell to negative 49%, the lowest ever in 48 years of data (figure below).
One of the biggest concerns during the early days of the pandemic was that small businesses would simply cease to exist, a terrifying prospect that prompted Congress to launch a rescue program that some criticized as a magnet for fraud. Haphazard though it may have been, it was a necessary backstop.
Small businesses, you’re reminded, are often described as the “lifeblood” of the world’s largest economy. They account for around half of all private sector employment in the US.
Just as we need Main Street to spend, we need Main Street to hire. If small businesses can’t compete for workers in an environment of surging labor costs, corporate America will need to compensate for lost hiring once mom and pop are tapped out.
April’s ADP report underscored the risks.
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Great point on the crowding out of small business. How many small businesses were built and dependent on access to minimum wage labor? We are finding out.
Beyond that, personnel managers, like their counterparts in purchasing, have been facing many shortages. All rational until the CEO drops by and suggests “why don’t we reduce our efforts a bit. The folks in marketing say that demand is starting to soften.” (Reinforcing the notion that employment is a lagging indicator.)
I also wonder how many of those job openings cited in the JOLTS report are a charade of sorts. Before a company can apply for 12b-1 visas, they have to show proof that they tried and failed to find US workers who could fill the opening. Thus ads like “looking for programmer with Cobol, C++, Oracle DB as well as skills in AI and analog chip design. Offering $60,000 plus 401K match.”
The number of 12b-1 visas has been cut, but I’d wager there are still many similar ads are still out there.
What I meant to add in he second paragraph was that your friends in purchasing were “encouraged” to over-procure chips & such while personnel departs were given a full speed ahead on hiring. Thus the JOLTS number. BUt once demand for a company’s product start tp decline, those ads will disappear.
Relevant in the context of Chairman Powell’s measured responses to stupid questions from Liesman & co. I was pleasantly surprised by the opening questions from the Wall Street Journal reporter.