ADP Jobs Report Is a Stark Warning on the Economic Recovery That the Stock Market Is Ignoring – Barron's
July’s jobs slowdown involved businesses across all sizes and sectors.
Hiring slowed markedly in July as a renewed spike in coronavirus cases prompted some states and companies to roll back reopenings, data released on Wednesday shows. It is the latest sign that the U.S. economic recovery is at risk of reversing.
Payroll provider ADP said companies added 167,000 jobs in July, far short of the 1.2 million economists polled by FactSet expected. That follows bigger gains in June and May, when employers added a total of 7.6 million jobs. A report on Tuesday showed small-business hiring fell below April levels in June. Together, they suggest downside risk to Friday’s nonfarm payrolls report from the Labor Department and highlight how difficult it is for the economy to absorb millions of workers left jobless by the coronavirus pandemic and efforts to contain it.
While layoffs were concentrated in sectors most affected by shutdowns—hospitality, travel and retail—the pain has been spreading. Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, said July’s slowdown affected businesses across all sizes and sectors. The construction and financial-services sectors were two that shed jobs during the month.
Looking ahead to Friday, economists have been predicting an increase of 1.6 million in nonfarm payrolls. That would follow gains of 4.8 million and 2.7 million in June and May. ADP’s report isn’t a perfect signal because its methodology is different than the Labor Department’s and it is subject to big revisions (the June figure, for example, was revised up to 4.3 million from 2.4 million), but many traders and economists consider it one last clue ahead of official monthly jobs data.
“This will surely weigh on investors’ expectations for Friday’s BLS data to show a strong continuation of jobs growth,” Ian Lyngen of BMO Capital Markets said. He noted that the July reading versus expectations is by far the largest disappointment in ADP history, and it “contrasts with the positive sentiment triggered earlier by Trump’s comments that there will be ‘another big job number on Friday.’ ”
Lydia Boussour, an economist at Oxford Economics, said earlier in the week that there is a risk Friday’s payrolls reading will miss expectations. She is looking for a decline of 280,000 jobs, based on her tracking of temporary employment, internet searches for “unemployment insurance,” jobless claims, job postings, and the number of hours worked.
While something close to what Boussour predicts wouldn’t mark a large pullback, it would show a reversal in the hiring trend at a time when millions of workers are losing enhanced unemployment benefits. The extra $600 a week in pandemic assistance expired at the end of July, and it is unclear when and by how much Congress will agree to extend the payments.
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