Private nonfarm payrolls increased 281,000 in June over the previous month, according to this morning’s ADP Employment Report—substantially more than expected and the biggest monthly gain since November 2012. The consensus forecast was looking for +213,000, according to Econoday.com. Today’s release certainly looks encouraging for thinking that tomorrow’s official payrolls report from the Labor Department will also deliver upbeat news. Yet it’s still premature to argue that momentum for jobs has shifted into a higher gear.
Just as we should be skeptical of any one or two weak monthly data points, it’s not obvious that today’s unusually strong numbers are a clear signal that the labor market’s growth rate is accelerating. Why? Because the year-over-year rate in the ADP data is still rising by around 2%, which is the pace we’ve seen for more than a year.
On the margins, the annual rate of growth has ticked up for ADP’s estimate of private payrolls, increasing 2.10% through June vs. the 2.05% gain in the previous month. But this data set was rising almost as fast through last October (+2.08%). As we now know, however, that faster increase didn’t lead to a macro Promised Land, as the recent slowdown in economic growth reminds.
Will it be different this time? Perhaps. Several factors suggest that we’ll see stronger growth in jobs and the economy overall in the months to come. Mark Zandi, chief economist of Moody’s Analytics, notes in today’s ADP press release that “job gains are broad based across all industries and company sizes. Judging from the job market, the economic recovery remains fully intact and is gaining momentum.” Carlos Rodriguez, president and chief executive officer of ADP, adds that jobs in the cyclically sensitive construction industry increased to the highest level since early 2006.
A stronger signal that the economy’s capacity to create jobs has truly turned the corner would be the sight of persistence if not improvement in the current 2.10% year-over-year rate of growth.
Meantime, it’s clear that moderate growth prevails, just as the monthly updates of the economic profile on these pages have been advising all along (for example, here’s the June report). If the economy’s set to grow at a faster rate, the clues will be forthcoming. Today’s ADP data inspires optimism, but hard data that transcends one of two releases is still the benchmark to monitor.