ADP Sets Muted Tone for Payrolls and Unemployment

Friday’s economic reporting will be dominated by the Department of Labor’s Employment Situation Report. With unemployment handily under 4% and with nonfarm payrolls averaging over 200,000 per month, it’s a time that the Federal Reserve wants to be vigilant to make sure that a strong job market doesn’t overheat the market with excessive wage growth and inflation. This report may have a bit of a more tame tempo to it if the ADP monthly payrolls data matches up with the Labor Departments in the trends.

ADP reported that private sector payrolls increased by 179,000 jobs in November from the prior month. Dow Jones was calling for a gain of 190,000 in November’s report. October’s report was revised slightly lower, down to 225,000 from 227,000 issued a month earlier. The ADP National Employment Report is derived from ADP’s actual payroll data, and it tracks monthly changes in U.S. nonfarm private employers on a seasonally adjusted basis.

While small and midsize businesses are generally considered to be the leader in employment, medium-sized businesses with fewer than 500 employees added 119,000, compared with 46,000 from small businesses with fewer than 50 employees. Large businesses, those with 500 and more employees, added only 13,000 net jobs in November.

Another trend that remains is the United States is a services economy. The “goods-producing” sectors added just 16,000 net jobs, versus 163,000 from the service-providing sectors. Most of the services jobs came from just two areas, with 59,000 from professional and business services and 49,000 in health and education.

The overall tone here is that jobs growth had decelerated and likely has peaked. Here are two quotes from the ADP and Moody’s team compiling the ADP monthly payrolls report. First, Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, said:

Although the labor market performed well, job growth decelerated slightly. Midsized businesses added nearly 70 percent of all jobs this month. This growth points to the midsized businesses’ ability to provide stronger wages and benefits. It also suggests they could be more insulated from the global challenges large enterprises face.”

And Mark Zandi, chief economist of Moody’s Analytics, said:

Job growth is strong, but has likely peaked. This month’s report is free of significant weather effects and suggests slowing underlying job creation. With very tight labor markets, and record unfilled positions, businesses will have an increasingly tough time adding to payrolls.”

Friday’s November report from the Labor Department has the Dow Jones consensus estimates at 198,000 on nonfarm payrolls and for unemployment to remain flat at the 3.7% official rate.