ADP Employment Numbers: Different Month, Same Story

Source: Dave Lundy / Flickr

December, January, and now February have seen levels of job creation far too low to dig the U.S. economy out of the crater in the labor market created by the financial crisis and Great Recession. With the release of payroll processor ADP’s National Employment Report for the month of February, economists were given a sign that employment gains were weak in the first months of the year. U.S. private-sector employers added just 139,000 jobs to payrolls, a figure well below the twelve-month average, according to ADP Chief Executive Carlos Rodriguez. As in previous months, Moody’s Analytics chief economist Mark Zandi, whose firm helps compile the payroll processor monthly tally, blamed frigid temperatures, not underlying economic trends, for the poor growth.

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Source: ADP/Moody’s Analytics

“February was another soft month for the job market,” he said in the report. “Bad winter weather, especially in mid-month, weighed on payrolls.” Zandi noted that job growth is expected to improve when warmer weather returns. It’s true that cold weather across much of the United States has curtailed residential construction and home sales, hobbled manufacturing output, and damped retail sales — especially at car dealerships. Zandi told CNBC that “the very cold weather is playing havoc on all the economic data.” But some economists argue that larger forces may be at play. Factors like rising mortgage rates could be stifling economic growth, which is expected to accelerate this year due to a newfound strength in consumer spending created by rising household wealth and decreasing debt.

As Zandi pointed out, weak employment gains were constant “across a number of industries.” But, as usual, the service-producing sector created far more jobs than the goods-producing sector, with payroll additions numbering 120,000 in the former category and only 19,000 in the latter. Factories added just 1,000 new positions last month; construction firms added 14,000. Meanwhile, trade, transportation, and utilities companies added 31,000 jobs, and professional and business service providers added 33,000 jobs. Companies offering financial services cut staff by 2,000 positions. By company size, ADP data showed small business led the job gains, with firms employing between one to forty-nine workers adding 59,000 jobs to payrolls, businesses employing between fifty to 499 people adding 35,000, and large corporations employing more than 500 people adding 44,000.

February’s tepid growth was joined by a large downward revision to January’s numbers. Payroll additions were lowered from 175,000 jobs to 127,000, making it the weakest month for hiring since August 2012. At that level, ADP’s numbers mirrored those of the Labor Department much more closely. Government data found that U.S. employers added only 113,000 jobs to payrolls in January, the second straight month of weaker-than-expected employment gains.

ADP’s report is typically seen as a precursor to the Labor Department’s employment situation report. “The ADP report hasn’t done a particularly good job in signaling first prints in the [Labor Department] report, overpredicting that number by 33,000 in January, and a whopping 151,000 in December,”  JPMorgan Chase chief U.S. economist Michael Feroli told Bloomberg via email. “Not surprisingly, the magnitude of those misses was revised lower after the revisions in today’s report, and generally the ADP revisions have an uncanny ability to make first-print misses disappear.”

The more authoritative report from the Labor Department’s Bureau of Labor Statistics will be released Friday, and analysts expect the data to show employers added 152,000 new jobs to payrolls last month. Of course, in both December and January, results significantly missed forecasts, fueling the debate over whether low job creation was the result of slowing economic growth or poor weather.

But is important to remember — as Zandi noted — that weather can have much bigger effect on the government’s numbers than on the ADP’s figures because of the way the two tallies are made. ADP uses private payroll counts, while the Labor Department relies in part on a mid-month survey of households that tabulates the number of workers receiving pay for the week in question. If a snowstorm or another weather issue occurs during that week, the government data can be disproportionately impacted.

For much of this year, the general downward trend of jobless claims offers a sign that even though job creation was not strong in December and almost as equally weak in January, businesses remain confident enough to keep workers in recent months even if they were not inclined to increase payrolls significantly. However, low levels of job creation do not indicate the same degree of progress as jobless claim numbers. The U.S. economy created just 75,000 jobs in December and 113,000 jobs in January; both headline numbers were below expectations.

Still, the fact that the unemployment rate declined for the right reasons in January cannot be discounted. More people began looking for work last month, a notable change in a labor market often characterized in recent months by its high number of disheartened workers. Since October, the unemployment rate has fallen from 7.2 percent, largely because a high number of disheartened workers have dropped out of the labor force. As a result, the labor force participation rate — the share of working-age Americans who are employed or looking for work — fell to a several-decades low. The fact that more people began looking for work in January was a sign of optimism, and some of those job hunters found employment, which contributed to the percentage point decline in the unemployment rate.

The fact that the unemployment rate fell as labor force participation rose by close to half a million suggests that the underlying employment trends are stronger than the headline jobs number would suggest. Capital Economics’ Paul Ashworth said the so-called “guts of the January employment report” showed much more strength than payroll additions.

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