Job Growth Eases, Service Sector Up, Autos Back on Track, Trade Gap Narrows
- The April ADP Employment Report showed a less-than-expected gain of 156,000 private-sector jobs.
- The ISM Non-Manufacturing Index increased in April to 55.7 on pricing and new orders.
- Light Vehicle Sales for April increased to a 17.4 million unit rate.
- The U.S. International Trade Gap narrowed in March to $40.4 billion as imports eased.
The April ADP Employment Report, which provides a preliminary view on private-sector employment, showed an increase of 156,000 jobs for the month, which was less than expected. The ADP data implies that the official Bureau of Labor Statistics jobs report for April, which is due out Friday morning at 7:30 Central time, will also fall below expectations. Consensus expectations for Friday’s payroll gain were about 205,000 as of yesterday. If we take the ADP number as a reasonable estimator and add our guess of about 5,000 government sector jobs for the month, that gives us an estimate of a net gain of 161,000 nonfarm payroll jobs for April. This will be viewed as a downside miss and likely reinforce the Federal Reserve’s ongoing caution in its interest rate policy. We believe that the Federal Reserve will have enough cause for pause to leave the fed funds rate unchanged at its upcoming FOMC meeting over June 14/15. Large businesses were the weak link in today’s ADP Report, adding 24,000 jobs in April. Small businesses did their part, adding 93,000 jobs. Medium-sized businesses (between 50 and 499 employees) added 39,000 jobs in April.
The ISM Non-Manufacturing Index for April improved to 55.7 from March’s 54.5. All ten sub-indexes were above 50, indicating improving conditions across the board. Thirteen reporting industries said they grew in April. Four said they contracted, including mining. Anecdotal comments were generally positive.
Auto sales accelerated in April from March’s 16.6 million unit pace to a 17.4 million unit rate. Sales of domestic trucks did the heavy lifting. Over the next few months we will see whether auto sales can regain their robust 18.2 million unit sales rate held from last September through November. We expect auto sales to total about 17.2 million units this year and ease going into 2017. Incentives can help drive sales in the latter stages of the sales cycle, but they eat into corporate profits and often cannibalize sales from subsequent months.
The U.S. international trade gap narrowed significantly in March from February’s -$47.0 billion, to -$40.4 billion. The big move came from imports of goods, which dropped by $8 billion for the month as non-auto consumer goods imports eased. We expect trade to continue to be a mild-to-moderate drag on GDP in the current second quarter.
Market Reaction: U.S. stock prices opened with losses. The yield in 10-Year T-bonds is down to 1.80 percent. NYMEX crude oil is up to $44.00/barrel. Natural gas futures are up to $2.14/mmbtu.
For a PDF version of this Comerica Economic Alert click here: ADP 05-04-16.