ADP Payrolls Strength Supports Trump Bump and Higher Labor Department Expectations

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If economists and investors were looking for confirmation that the post-election rally was going to turn into real growth in economic readings, look no further than the January ADP Employment Report. January’s payrolls grew by a whopping 246,000, according to that report.

Bloomberg had a consensus estimate of 168,000, and its Econoday range was only 160,000 to 185,000. So payroll growth was sharply higher than every single economist and pundit was calling for. Also, December’s payrolls were revised down to 151,000 from 153,000 initially reported.

To further put this large jobs growth in perspective: the last reading from ADP that was this high was the 261,000 seen in June of 2016 and the 303,000 from December of 2015.

Some investors and economists will point out that this only confirms strong jobs trends for what will come from the Trump pro-growth policies. Others will discount any ties to new expected policies that have yet to unfold and come into play. Despite how each side feels on that notion, that disparity is what makes an economic and financial ball game.

Small businesses (one to 49 employees) added 62,000 of the payrolls in January, and in that number there were 15,500 higher franchise employment payrolls. Midsized business (50 to 499 employees) added 102,000 payrolls, and large businesses (500 or more employees) added 83,000 to the payrolls.

A breakdown of the sectors showed that goods-producing jobs grew by 46,000 and service-sector jobs were up 201,000. Of those, the breakdown was as follows:

  • 6,000 gained in natural resources and mining
  • 25,000 gained in construction
  • 15,000 gained in manufacturing
  • 63,000 gained in trade, transportation and utilities
  • 6,000 were lost in information
  • 0 net change in financial activities
  • 71,000 gained in professional and business
  • 47,000 gained in education and health
  • 17,000 gained in leisure and hospitality
  • 9,000 gained in “other services”

What matters here is that this ADP should not dictate the final outcome of this Friday’s Bureau of Labor Statistics (BLS) report on January nonfarm payrolls. That is the official government report that is given much more impact than ADP’s view, but there is the private sector and there is the nonfarm headline reading that also includes government jobs.

ADP is often not exactly in line with the BLS report, but what the report does tend to do is indicate a directional bias. Bloomberg’s formal consensus reading for Friday, which may be revised higher after the ADP strength, was last seen at 175,000 on the total nonfarm payrolls and 170,000 on the private sector payrolls.

Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, said of January’s strength:

The U.S. labor market is hitting on all cylinders and we saw small and midsized businesses perform exceptionally well. Further analysis shows that services gains have rebounded from their tepid December pace, adding 201,000 jobs. The goods producers added 46,000 jobs, which is the strongest job growth that sector has seen in the last two years.

Mark Zandi of Moody’s, who predicted an economic recession if Donald Trump beat Hillary Clinton, refused to acknowledge the post-election rally as having any impact on the jobs number in January. His official quote said of January:

2017 got off to a strong start in the job market. Job growth is solid across most industries and company sizes. Even the energy sector is adding to payrolls again.

Zandi appeared on CNBC and noted a pickup in global growth, indicating that this tight labor market is only going to get tighter. When CNBC’s Steve Liesman asked about the CEO exuberance and views after the Trump victory, Zandi responded:

Well, I don’t think it has anything to do with the election. If you look at growth around the world it has improved substantially. Go look at Europe, go look at China, look at Japan. Economic activity has improved over the last three to six months. … I don’t think this number has anything to do with the election. But I do think we will get into an environment where businesses say ‘If I don’t hire people I am not going to be able to fill those open positions.’ it would be labor hoarding. I don’t think we are there yet but I can see that happening in the not too distant future.

Stocks were much stronger on the initial ADP report’s reaction. The Dow was up 100 points, but it was last seen up only about 20 points.