Thursday, 6 September 2007

Private sector employment growth hits 4 year low

According to the ADP report released yesterday private payrolls grew by 38,000 in August, following a 41,000 gain in July prompting ADP to speculate that:

"A deceleration of employment may be under way,"

The ADP has a patchy record in terms of it's reliability to predict nonfarm payrolls which will be released on Friday. Economists are expecting payroll growth to show around 120,000 jobs were created in August, the ADP report suggests that number could be optimistic.

As a noted yesterday strong employment has been seen as a pillar supporting moderate economic growth going forward. A couple of factors of late point to a slowdown in employment. Firstly a rise in jobless claims in August and secondly fewer consumers said jobs were plentiful in the consumer confidence survey.

Adding in some 27,000 government jobs not covered by the ADP report, the report suggests the government's figures on nonfarm payrolls probably grew by about 65,000, which would be the smallest payroll growth in nearly three years. Nonfarm payrolls have averaged 135,000 over May, June and July. The ADP report had averaged 94,000 per month over that time.

The big unknown of course is the controversial birth/death adjustment which has been responsible for some rather hefty job increases in unlikely industries such as construction.

No doubt employment growth is slowing, average employment growth ran at 189,000 per month in 2006. Whilst that average is down it is not disastrous. More jobs are being created than lost. However weakness in employment can quickly spill over to consumer spending and that is why the Fed and the markets will be paying particular attention to Friday's report.