Thursday, 3 January 2008

ADP report suggests slow job growth in December

After a period of reasonable correlation with the BLS nonfarm payroll numbers the ADP report lost it's credibility as a good predictor of nonfarm payroll job growth last month estimating more than twice the number (189,000) of new jobs as the BLS report (94,000). So should we put any stock in today's numbers? From

Nonfarm private employment grew 40,000 from November to December of 2007 on a seasonally adjusted basis, according to the ADP National Employment Report. The estimated change in employment from October to November was revised down 16,000 to 173,000. December’s increase of 40,000 marked a slowing of nonfarm private employment growth that averaged 118,000 during the three-month period from September through November.

Employment in the service-providing sector of the economy grew 71,000, while employment in the goods-producing sector declined 31,000, the thirteenth consecutive monthly decline. Manufacturing employment experienced its eighteenth consecutive monthly decline, falling 16,000...

...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 is still falling. In December, construction employment fell 17,000. This is the thirteenth consecutive monthly decline, bringing the total decline in construction jobs since the peak in August 2006 to 199,000. Employment in financial activities fell 5,000, which is the third decline during the last five months.

So according to ADP 40,000 new private sector jobs were created in December. If we add the customary 25 - 30k government jobs not captured by the ADP report that suggests we could expect 65 -70k new jobs for the month of December from the BLS report tomorrow which is about what consensus is expecting.

However as suggested above the ADP report has to be taken with a grain of salt. Last month's job growth was revised own 16,000 to 173,000 however that is still well above the BLS estimate of 94,000.

Whilst tomorrow's headline number for nonfarm payroll growth in December is much anticipated, the revisions are much more reliable than the headline number. Coupled with the usual controversy surrounding the Birth / Death adjustment tommorrow's report will be an interesting one to dissect.

Also on the employment front, weekly jobless claims fell to 336,000 however last week's claims were revised upward to 357,000 from 349,000 reported previously.

The 3 month moving average continues to hover just under 350,000. As can be seen in the chart below, the last two recessions began when claims reached a 4 week moving average of 360 - 370k and then accelerated to almost 500k by the time the recessions had run their course.