Wednesday, June 3, 2015
Stocks are indicated to start today’s session in positive territory, though developments in Greece could shape sentiment later in the session. On the data front, the ADP (ADP) report came a tad below estimates, but nevertheless reconfirms the spring recovery in the economy.
The ADP read came in at 201K for May vs. estimates of about 215K, and 165K in April (revised higher by +4K), with the monthly tally moving back above 200K after remaining below that level in the prior two months. This report will likely have no impact on consensus expectations for Friday’s government jobs report — the consensus estimate for the BLS report is for ‘headline’ gains of 220K (per Bloomberg.com), which includes government jobs.
May gains were concentrated in the service sector of the economy, with the bulk of the jobs coming from small and medium-sized employers. In the aggregate, the services providing industries added 192K in May while goods-producing industries added 9K. The Construction industry had another good month, adding 27K positions, while manufacturing lost 5K jobs in the month.
The construction strength is in-line with what we have been seeing in related readings like housing starts and new home sales numbers, though the manufacturing weakness runs counter to the positive momentum on display in Monday’s factory sector ISM survey. In terms of business size, large businesses (500 or more employees) added 13K jobs, medium-sized businesses added 65K, while small businesses with fewer than 50 employees in total added 122K jobs.
On a month-to-month basis, the ADP report can be out-of-sync with the corresponding government jobs report, as was the case last month. But in the long run, the two reports do tend to move together. Both reports showed the labor market losing steam in Q1 as the economy lost momentum, but it appears that the government jobs report picked up the Q2 recovery quicker relative to the ADP survey. Today’s report is broadly consistent with the spring recovery that we have been seeing lately in weekly claims numbers.
The takeaway from this and other recent economic reports is that the U.S. economy is on track for a growth recovery in Q2 after the weak Q1 showing. The rebound has not been as strong as many were expecting and what we saw in last year’s spring bounce-back, but it is nevertheless reassuring enough to give enough confidence to the Fed to start its monetary policy tightening process.
Sheraz Mian
Director of Research
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