July’s ADP National Employment Report showed a change in payrolls of -350K, compared to a revised drop of -463K in June. The latest Bloomberg consensus estimate was -350K. The job market continues to improve, despite remaining at dismal levels. Initial market reaction was negative to the report with interest rates trading up and equities futures down, however, they have both since moderated.
According to the report the service sector shed 202K jobs, while the goods producing sector and manufacturing lost 169K and 99K, respectively. This was the manufacturing sectors lowest monthly drop since September 2008.
This release is considered a window into Friday’s official payrolls report. With this in mind, today’s result, despite my original thoughts, could place some negative pressure on analysts forecasts for Friday’s off payrolls release. (current consensus is -300K) Recently, ADP started incorporating jobless claims into its calculation, and given the recent quirks in the seasonal adjustment factors to that index, this month’s ADP number may be overly optimistic. According to ADP, “July’s employment decline was the smallest since October of 2008 and continues the notable improvement between the first and second quarters of 2009. Nevertheless, despite recent indications that overall economic activity is stabilizing, employment, which usually trails overall economic activity, is likely to decline for at least several more months, albeit at a diminishing rate.”
More To Come…
ADP Employment Report vs. Payrolls
Source: Bloomberg
July’s ISM came in well above expectations at 48.9, compared to June’s reading of 44.8, a reading over 50 would indicate expansion. The employment index rose to 45.6 from 40.7, while prices paid rose to 55.0 from 50.0. The growth in the employment index could help alleviate some pressure on this Friday’s employment report, it will be important to keep an eye on Wednesday’s ADP release and the employment component of the non-manufacturing ISM report, released the same day. New orders, which tends to a forward looking component rose to 55.3 from 49.2 in June.
US construction spending rose 0.3% to US$965.7bn, compared to a Bloomberg consensus of -0.5%. The gains were primarily due to increased residential and government related construction. Government construction rose 1.0%, reaching US$321.75bn, the highest level on record.
Overall these results, especially the netter than expected ISM release, are very good news for the US economy. According to the ISM, “”The decline in manufacturing was slower in July when compared to June, as the more leading components of the PMI – the New Orders and Production Indexes – rose significantly above 50 percent, thus setting an expectation for future growth in the sector. The Employment and Inventories Indexes are still contracting, but the rate is slowing and they are moving in the right direction. It is also worth noting that the New Export Orders Index shows growth following nine consecutive months of decline, suggesting that the global economy is recovering. Overall, it would be difficult to convince many manufacturers that we are on the brink of recovery, but the data suggests that we will see growth in the third quarter if the trends continue,”
ISM Breakdown: (Source Reuters)
|
July |
June |
May |
April |
March |
Feb |
Jan |
| PMI |
48.9 |
44.8 |
42.8 |
40.1 |
36.3 |
35.8 |
35.6 |
| New Orders |
55.3 |
49.2 |
51.1 |
47.2 |
41.2 |
33.1 |
33.2 |
| Production |
57.9 |
52.5 |
46.0 |
40.4 |
36.4 |
36.3 |
32.1 |
| Employment |
45.6 |
40.7 |
34.3 |
34.4 |
28.1 |
26.1 |
29.9 |
| Supplier Delays |
52.0 |
50.6 |
49.8 |
44.9 |
43.6 |
46.7 |
45.3 |
| Inventories |
33.5 |
30.8 |
32.9 |
33.6 |
32.2 |
37.0 |
37.5 |
| Prices |
55.0 |
50.0 |
43.5 |
32.0 |
31.0 |
29.0 |
29.0 |
| Backlog Orders |
50.0 |
47.5 |
48.0 |
40.5 |
35.5 |
31.0 |
29.5 |
| Exports |
50.5 |
49.5 |
48.0 |
44.0 |
39.0 |
37.5 |
37.5 |
| Imports |
50.0 |
46.0 |
42.5 |
42.0 |
33.0 |
32.0 |
36.5 |
The Conference Board’s Consumer Confidence index fell to 46.6 in July from 49.3. The Present Condition Index fell to 23.4 from an initial reading of 25.0, while the Expectations Index fell to 62.0 compared to an initial reading of 65.5. Weakness in the labor market was likely the primary driver behind these declines. This is the second consecutive month of declines for the index.
Lynn Franco, Director of The Conference Board Consumer Research Center: said, “Consumer confidence, which had rebounded strongly in late spring, has faded in the last two months. The decline in the Present Situation Index was caused primarily by a worsening job market, as the percent of consumers claiming jobs are hard to get rose sharply. The decline in the Expectations Index was more the result of an increase in the proportion of consumers expecting no change in business and labor market conditions, as opposed to an increase in the percent of consumers expecting conditions to deteriorate further. However, more consumers are pessimistic about their income expectations, which does not bode well for spending in the months ahead.”
The Reuters/University of Michigan consumer sentiment index dipped for the fist time in five months to 66, compared to a market consensus of 65 for July. At the same time the July expectations index increased to 63.2 versus July’s preliminary reading of 60.9. The drivers behind this month’s declines were derived from weakness in the labor market and wages. This reading implies that consumers remain concerned over the current economic conditions, and will likely keep spending restrained until a brighter outlook for the employment situation emerges.
