More Of The Same For Private Payrolls: Moderate Growth

Private payrolls increased at a relatively slow pace last month, rising by a net 176,000 in August vs. the previous month, according to the ADP Employment Report. As expected, the August gain was below July’s revised 198,000 increase. Meanwhile, the Labor Department’s latest weekly update on initial jobless claims brings better news: new filings for unemployment benefits dropped 9,000, falling to 323,000 in seasonally adjusted terms, which is near a 5-year-plus low. Yes, it looks like a mixed bag for updates on the labor market today. In fact, the news is a bit better than it appears once we focus on year-over-year trends.

Let’s start with the ADP data. The latest monthly number looks a bit soft compared with the stronger increases in June and July. Sure, this may be the start of new headwinds for payrolls, but it could just as easily be noise. History reminds rather convincingly that the monthly comparisons are often misleading, one way or the other. A more reliable measure is the year-over-year percentage change. By that standard, the August read on the ADP data appears to be in line with the recent trend of moderate growth. In fact, ADP private payrolls advanced at roughly 1.9% vs. the year-earlier level—the strongest annual comparison in a year.

Meanwhile, jobless claims continue to fall. The fact that last week witnessed another drop is, by itself, more or less irrelevant. By comparison, the reality that new claims have been steadily declining for several months is a much stronger signal in favor of optimism.

Even better, unadjusted claims (before seasonal adjustment) dropped more than 13% last week from the year-ago figure. That’s close to the biggest annual percentage decline we’ve seen so far this year.

Positive momentum, in short, is alive and kicking in today’s employment news. The new claims data is particularly bullish. Meanwhile, the worst you can say about the ADP report is that private payrolls continue to post modest increases. Today’s ADP news doesn’t provide a lot of support for thinking that tomorrow’s official payrolls update from the Labor Department will break free of the slow-to-moderate growth we’ve seen. Nonetheless, considering today’s two employment updates in context with the broad trend for macro, there’s still a strong case for arguing that the economy will continue to grow at a decent if unspectacular pace for the near term.