Private payrolls in the US increased by 172,000 in June, according to this morning’s release of the ADP Employment Report. The gain, although modest by the standards of the last several years, marks the strongest advance since March. But the annual pace of growth dipped to a three-year low, providing more evidence that the labor market’s expansion continues to decelerate.
“Job growth revived last month from its spring slump,” says Mark Zandi, chief economist of Moody’s Analytics, which co-produces the data with ADP. “Job growth remains healthy except in the energy and trade-sensitive manufacturing sectors. Large multinationals are struggling a bit, and Brexit won’t help, but small- and mid-sized companies continue to add strongly to payrolls.”
The overall trend, however, is showing signs of aging. ADP’s estimate of private payrolls eased to a 1.9% year-over-year rate, the slowest annual pace since June 2013. Nonetheless, the respectable monthly increase implies that tomorrow’s June update from the Labor Department will post a sizable rebound after May’s tepid increase in private payrolls of just 25,000—a five-year low.
Using a linear regression framework to model the relationship between the ADP and government data points to a gain of 169,000 for private payrolls in tomorrow’s Labor Department release for June, or fractionally below the 170,000 increase that’s projected via Econoday.com’s consensus forecast. If the prediction holds, the news will provide support for arguing that the dramatic downshift in May was noise.
Keep in mind that even if the consensus forecast is accurate for tomorrow, the government’s numbers will fall in line with today’s ADP figures by reflecting the slowest year-over-year gain in three years. As such, the news will reaffirm that view that job growth is still respectable, but the expansion’s strength is waning. Extrapolating the trend out into the near-term future suggests that the US economic growth will remain sluggish. Along the way, the crowd’s tolerance for disappointing economic news will continue to fade.
Note, however, that job growth’s annual rate stumbled in 2012-2013 without leading to an NBER-defined recession. A key factor: the revival in the year-over-year increase in private employment. Will history repeat? The 2012-2013 slide offers some context. The annual increase in employment dipped to roughly 1.7% in April 2013 before reaccelerating, based on ADP’s numbers. By that standard, the current 1.9% rise through June still looks encouraging.
The question is whether job growth will stabilize at the current rate–or run higher–in the months ahead? Perhaps tomorrow’s data from Washington will provide more perspective on the outlook for the labor market in 2016’s second half.