NFP, ADP Employment Change Preview: US labour market retreats

Job growth is predicted to be 300,000 up from 247,000 in April. ADP average for the fourth quarter in 2021 was 582,000, first was 530,000. NFP forecast for 320,000 in May, down from 428,000. Economists and observers see that market sensitivity to the labour market has retreated.

Private payrolls from Automatic Data Processing (ADP), the world’s largest salary service provider, are forecast to rise to 300,000 in May following 247,000 new hires in April. The ADP data will be released on Thursday, one day later than usual due to Monday’s Memorial Day holiday in America.

Unemployment in the US is 3.6%, just one-tenth of a point from its all-time record. The problem for employers and the economy is not the unemployment rate but the labour participation rate. People have not returned to the standard labour market in anything like the numbers needed to fill the vast number of outstanding jobs.

The prospective slowdown in ADP and perhaps NFP in May will be understood by traders as a product of labour scarcity rather than a weakening economy. Market reaction will be limited or nonexistent to the ADP numbers, partially due to their poor correlation to NFP and partially to the diminution of labour concerns, supplanted by inflation.

American job creation is expected to diminish in the second quarter despite a record number of unfilled positions, even as market concerns have deserted employment for inflation. Coming before Washington’s Employment Situation Report, commonly known as Nonfarm Payrolls, or just payrolls for its central statistics, the ADP report has long been looked upon as a rich report to extract clues to the national job numbers albeit the monthly directional correlation is relatively weak.

In the last year, the ADP and NFP have moved in the same direction seven times and in opposition five times. For May, ADP is anticipated to rise and NFP is expected to fall. The most noticeable fact of the US job market is the historic number of unfilled positions, a surplus of work, and scarcity of employees that has lasted for more than one year.

The Job Openings and Labour Turnover Survey (JOLTS), from the Bureau of Labour Statistics (BLS), has been above the prior all-time record of 7.574 million in November 2018 for 13 months. Since October, US employers have been looking for an average of 11.245 million workers each month. For the last year, the economy has averaged 42% more openings than at any previous time in its history.

The struggle to find workers has been mentioned by purchasing managers as the main factor behind the decline in the US employment indexes. The manufacturing index has fallen from 54.5 in January to 50.9 in April. While the services index has dropped from 57.0 in November to 49.5 in April, the second month of contraction in the last six.

The explosion in US inflation has become the dominating condition of the US economy and the chief rationale of Federal Reserve policy. After ignoring the burgeoning price increases for nearly a year, the Fed reversed course and is expected to hike the fed funds rate 300 basis points or more this year.

Markets will not know if the US economy is in a technical recession until the end of July when second quarter GDP is reported. The data will come just after the Fed enacts its third 0.5% rate increase in a row on July 27.

The key to US growth is consumer spending, the well-known 70% base of economic activity. Though Retail Sales and Personal Spending, the two chief measures of consumption, have remained relatively strong, they are uncorrected for price increases. Real personal spending, adjusted for inflation, from the Bureau of Labour Statistics (BLS) tells a very different story. It has been flat for the past four months.

Consumers have maintained their spending even as purchasing power has been declining for more than a year, by drawing on their financial resources. The US saving rate fell to 4.4% in April, the lowest since 2008, according to a Commerce Department report on Tuesday.