ADP Promises Slowing Job Growth Is Temporary

Friday’s Employment Situation Report from the Department of Labor’s Bureau of Labor Statistics is much anticipated by economists after December’s extremely weak job growth and a series of recent weak economic data releases. If the report shows strong job creation, the positive outlook for the labor market recovery could be revived, but if the numbers are weak, concerns for the economy’s ability to create jobs could be renewed.

With the release of payroll processor ADP’s National Employment Report for the month of January, economists were given a sign that a new employment trend is indeed on the rise. But unlike early last year, when fears of economic instability, political crisis, and low consumer spending kept employers from increasing hiring, the current problem is the freezing temperatures across much of the United States.

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Following December’s downwardly revised 227,000 job gain, U.S. employers expanded payrolls by just 175,000 in the past month. “Cold and stormy winter weather continued to weigh on the job numbers,” according to Moody’s Analytics chief economist Mark Zandi, whose firm helps compile payroll processor ADP’s National Employment Report. However, “underlying job growth, abstracting from the weather, remains sturdy,” he said in the press release announcing the month’s numbers.

“It’s not an auspicious start,” he said on a conference call on Wednesday, per the Los Angeles Times, ”but I think we’re still going to have a better year.” Zandi expects average monthly job growth to increase from the 175,000-to-200,000 pace of the last three years to approximately 225,000.

Despite Zandi’s confidence, the S&P 500, Dow Jones Industrial Average, and Nasdaq all began Wednesday trading in the red.

As ADP President and CEO Carlos Rodriguez noted, January’s 175,000-job addition was in line with the average monthly job creation experienced throughout 2013, meaning last month was fairly typically, if slow. What January employment growth was not was a great leap forward for the labor market. It was the slowest increase in payrolls since August and well below expectations for 189,000 job additions.

The meager 175,000 jobs added by employers followed slow growth in December. While ADP’s report showed job gains of 227,000, strong employment gains were absent from the more authoritative jobs report from the Department of Labor. According to Bureau of Labor Statistics, the U.S. economy created just 74,000 jobs last month, the slowest pace in three years.

Economists expected employers to add between 191,000 and 196,000 new jobs to payrolls, and the huge shortfall put into question the theory that the labor market was finally gaining sustained momentum. The low figure also stood in contrast to the 188,550 jobs per month added from January to November of last year and the 182,750 jobs added per month in 2012.

While cold weather is likely responsible for the recent low monthly additions, growth in job creation has undeniably decelerated after speeding up for several months at the end of last year. “The job market ended 2013 on a high note,” Zandi said in the December ADP employment report.

The U.S. economy added an average of 204,000 jobs from August through November, but it was not until October that momentum in the labor market recovery noticeably changed. That month, the September gain was upwardly revised to 163,000 from 148,000, and August’s payroll additions were upwardly revised to 238,000 from 193,000.

With non-farm payroll employment rising by 200,000 jobs in October and 203,000 jobs in November, it seemed those economists who expected the labor market recovery to take giant steps toward the end of the year were correct. Even ADP’s December National Employment Report suggested that the more authoritative data from the Department of Labor would show strong labor gains through December. But cold weather seemed put the brakes on hiring.

ITG Investment Chief chief economist Steve Blitz believes more factors could be affecting the pace of hiring than just frigid temperatures. In a research note obtained by Forbes, he wrote that since November, the pace of Internet job postings has slowed in comparison to the year-ago rate.

In December and January, employers added an average of 201,000 jobs, according to ADP. In the past six months, employers added just 195,000 jobs — that difference suggests that trends are indeed improving. But another weak jobs report from the Labor Department could dampen lingering labor market optimism.

Most jobs gains in recent months have come from the service-producing sector with the exception of the construction industry, which has seen employment grow as the housing market recovery strengthens. That pattern did not change in January.

Even though gains were spread across a variety of industries, job creation was heavily concentrated in the service-producing sector, which added 160,000 new positions compared to the 16,000 jobs created by the goods-producing sector. The services-producing sector includes financial services, health care services, and business services, but a majority of the positions created in that sector are low-wage retail and restaurant jobs.

In particular, the construction industry added 25,000 jobs; the manufacturing industry lost 12,000 jobs; trade, transportation, and utilities added 30,000 jobs; financial activities remained stable; and professional and business services added 49,000 jobs.

Small companies, those that employ between one and 49 workers, led January’s job gains, adding 75,000 positions to their payrolls last month. Comparatively, medium businesses, with 50 to 499 employees, added 66,000 jobs; large corporations, with 500 or more workers, added 34,000 jobs.

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