Thursday, 6 December 2007

ADP Report Suggests Strong November NFP Growth

A big surprise this week for economists was Wednesday's ADP non-farm, private sector employment report. From

Nonfarm private employment grew 189,000 from October to November of 2007 on a seasonally adjusted basis, according to the ADP National Employment Report. The estimated change in employment from September to October was revised up 13,000 to 119,000. November’s increase of 189,000 marked a further acceleration of nonfarm private employment. The three-month average change in employment for September through November was 123,000, up from 43,000 during the three-month period from July through September.

The strength in employment during November was fairly broad-based. Even in manufacturing, construction, and financial services, sectors where employment has been under downward pressure, there are signs of accelerating employment.

That's a much bigger number than the 50,000 - 60,000 analysts ere expecting. Adding in 25,000 or so public sector jobs gives an estimate of Friday's NFP report of about 215,000 much higher than the 75,000 - 85,000 expected by economists.

All the job growth came from the service sector.With the exception of financial services, did anyone think there would be a slowdown in service sector jobs coming into the Christmas shopping season? The part of the report that I have a problem with is the following:

Two sectors of the economy hit hardest by recent problems in mortgage markets have been residential construction and financial activities related to home sales and mortgage lending. Today’s data suggest that in these two crucial sectors employment may be stabilizing. In November, construction employment fell for the twelfth consecutive month, but November’s decline of 6,000 was the smallest since January Furthermore, construction employment has accelerated (has become less negative) in each of the last three months. Employment in financial activities, which declined by 16,000 from July through October, reversed course and grew 10,000 in November

It would seem a bit premature given the continuing deterioration in the housing market to start calling a bottom in residential construction employment. Or maybe companies have already cut their workforces to skeleton crews?

The part I am most doubtful over is the increase in financial services jobs in November. Citigroup alone is apparently in the process of cutting at least 10% or 30,000 employees. How much hiring could there possibly be in markets that are downsizing?

In an interview on CNBC a few days ago, CEO of Countrywide Financial Angelo Mozillo said next year the residential mortage market is set to decline from $3.8 - $4 trillion t0 approximately $1.8 trillion. There is no way mortgage brokers will be carrying the same amount of personnel with half their market gone.

Remember employment is the laggard of all lagging indicators and usually doesn't turn sharply down until well into a recession. That said there is no denying that the report shows strong growth in service sector jobs, however it's still too early to start bottom-calling in residential construction and financial services jobs just yet.