Moderate Gain in ADP Employment Survey Does Not Raise Expectations for BLS Report
- The ADP Employment Report for January showed a moderate increase of 175,000 private-sector jobs.
- The ISM Manufacturing Index for January dipped to a still-positive 51.3 percent.
- The ISM Non-Manufacturing Index for January increased to 54.0 percent.
- January Auto Sales were frozen out, declining to a 15.2 million unit annual rate.
- Construction Spending in December increased by 0.1 percent.
A spate of weaker-than-expected economic and financial market data early in 2014 diminishes the luster on our sanguine economic outlook for 2014. In assessing the outlook for 2014 it is important to note that there are opposing forces at work in the economy that have different time structures. In the near term, it looks like the negative forces are winning. They are: (1) brutal winter weather for much of the country, (2) weakness in global equity markets, and still looming, (3) the possibility of an inventory correction in early 2014. However, longer-term positive forces are also at work in the U.S. economy. These include: (1) a virtuous economic cycle powered by improving home prices, (2) a synchronized global expansion driven by the U.S., China, and Japan and aided by stability in Europe, (3) a transition from fiscal drag to fiscal expansion, (4) a revolution in energy markets, (5) an improving balance of trade and (6) increasing credit availability. The negative near-term issues will abate. The weather will moderate. Equity markets will stabilize. Inventories will normalize. The positive longer-term factors will remain in play throughout the year. The positives win…just buckle your seatbelts until we get there.
The unofficial ADP Employment Report for January showed a moderate gain of 175,000 private-sector jobs. The ADP numbers are less susceptible to weather effects than the official Bureau of Labor Statistics data. So when the BLS numbers come out Friday morning, we still expect to see a soft report, showing about 150,000 payroll jobs added in January and no change to the 6.7 percent unemployment rate. The ADP report was not a good predictor of the BLS numbers in December. ADP posted a revised gain of 227,000 private sector jobs that month while the BLS data showed a much weaker increase of just 74,000 payroll jobs.
The January ISM Manufacturing Index fell to a still-positive 51.3. Comments were generally positive, but included references to the weather and to the lagged effects of the federal government shutdown. The employment sub-index remained positive at 52.3. The ISM Non-Manufacturing Index improved to 54.0. Anecdotal comments were positive. The employment sub-index for the service sector increased to 56.4, good stuff. Auto sales for January froze up, falling to a 15.2 million unit annual rate, well off the 16.4 million unit bounce-back rate of November. Given the terrible weather in much of the country, we will take January auto sales as a win and expect a rebound in February and March. Construction spending for December barely ticked up by 0.1 percent. Private residential construction spending increased by 2.6 percent. Private non-res decreased by 0.7 percent with a decline in the manufacturing sector. Public construction dipped by 2.3 percent. The Federal Reserve’s Senior Loan Officer Survey (SLOOS) showed loosening credit standards and increasing demand for commercial and industrial loans through January. This is a positive for business investment in 2014 and is consistent with moderately improving business confidence surveys.
Market Reaction: U.S. stock markets continue to slip in early trading. Long-term Treasury yields are down with the 10-Year T-bond rate at 2.65 percent. NYMEX crude oil is up to $97.44/barrel. Natural gas futures are down to $5.32.
For a PDF version of this Comerica Economic Alert click here: ADP 020514.