Private-sector payrolls increased by a sluggish 169,000 in April, according to this morning’s release of the ADP Employment Report. The rise is the weakest gain in 15 months and well below the 200,000-plus increase that was expected via Econoday.com’s consensus forecast. The weak raises new questions about the health of the US economy and what to expect in Friday’s official jobs report from the Labor Department.
Indeed, today’s update reaffirms the evidence that growth continues to decelerate. The downshift is clear in the year-over-year trend in the ADP data of late. Private payrolls advanced 2.4% for the year through last month. That’s a solid pace, if it continues. The problem is that the annual trend is slipping. Today’s 2.4% increase in April vs. the year-earlier level represents the third consecutive month of deceleration.
“Fallout from the collapse of oil prices and the surging value of the dollar are weighing on job creation,” says Mark Zandi, chief economist of Moody’s Analytics, which published today’s report in collaboration with ADP. “Employment in the energy sector and manufacturing is declining. However, this should prove temporary and job growth will reaccelerate this summer.”
Friday’s release will test that optimism. For the moment, the outlook is still encouraging. Econoday.com’s consensus forecast for the government’s estimate of private payrolls anticipates a dramatic rebound: a gain of 223,000 for April, or nearly double March’s tepid rise of 129,000. But after reading today’s ADP release, it may be time to manage expectations down.
Using the historical relationship of the ADP numbers via a linear regression model to predict the monthly change in private payrolls in Friday’s report implies an increase of 170,000 for April. That’s still a substantial improvement over March’s rise, but it’s well below the jump that economists are predicting via the consensus view. In other words, the case for expecting a strong second-quarter rebound after the weak Q1 GDP report continues to look challenged, or so the ADP figures suggest.
Yesterday’s April update of the ISM Services Index begs to differ. The headline number for this measure of sentiment in the services sector perked up to its highest reading since last November. “It shows a fair amount of momentum in activity,” according to Samuel Coffin, a UBS economist. “We’ll see a decent rebound in the economy this quarter though not a full reversal of the first-quarter weakness, and more momentum later on in the year as the trade drag dissipates,” he tells Bloomberg.
Maybe, but for the moment the case for optimism finds minimal support in the ADP data.