June ADP Employment and Auto Sales, May Factory Orders

Workers Get Jobs and Buy Cars, Equity Markets Rally, Happy Fourth!

  • June’s ADP Employment Report showed a robust increase of 281,000 private-sector jobs.
  • June Auto Sales revved up to a 17.0 million unit annual rate.
  • Factory Orders decreased by 0.5 percent in May, but remain consistent with a Q2 GDP rebound.

U.S. labor markets are improving quickly. Employed and more confident consumers are buying cars. Equity markets are showing their enthusiasm, adding to wealth and confidence. Tomorrow, we will get the official count of jobs added in June. Right now it looks like we are set to fire up the Fourth of July barbeques with a balmy economic tailwind, a welcomed change from a brutal winter. The ADP employment report for June reported a robust net increase of 281,000 private-sector jobs for the month, well beyond consensus expectations of about 205,000 jobs. Small businesses, less than 50 employees, added the bulk of the new positions, up 117,000 jobs. So from this very high-level view we can see no obvious drag from the rollout of the Affordable Care Act, nor from the threat, or actuality, of higher minimum wages. Based on today’s data, we will increase our expectations for tomorrow’s release of the official BLS payroll numbers, to a guess of about 235,000 jobs for June. We continue to expect the unemployment rate to decrease to 6.2 percent.

Auto sales also shifted up a gear in June, reaching a 17.0 million unit annual rate for the first time since July 2006. While there is certainly potential to see auto sales improve from here, we are getting into the range of the plateau in sales from the previous expansion. The drop in auto sales to a 9 million unit sales rate during the depths of the recession implies that there is still some upside potential for auto sales, especially as household income and household wealth continue to improve. On the other hand (you knew that was coming), the drop in auto sales through the last recession was no worse than the drop we saw through the back-to-back recessions of the early 1980s. The monthly light vehicle sales rate did hit some lofty peaks following that recession, reaching 21.2 million in September 1986. But total annual sales peaked at a more sedate 16.1 million in 1986.

New orders for manufactured products fell by 0.5 percent in May. This broke a three-month improving streak. Factory orders remain consistent with moderate business investment through Q2, supportive of a turnaround in real GDP growth from the dismal -2.9 percent in Q1. We will be cooking up our July U.S. economic outlook early next week. Right now, it looks like we will be close to 2.5 percent real GDP growth for the just completed second quarter.

Market Reaction: U.S. stock markets are up in early trading. The yield on 10-Year Treasury bonds is up to 2.61 percent. NYMEX crude oil is down to $105.17/barrel. Natural gas futures are down to $4.36.

Economic Alert 070214

For a PDF version of this Comerica Economic Alert click here: ADP 07-02-14.

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