The monthly ADP National Employment Report gets to act as a preliminary view for the U.S. Department of Labor’s Employment Situation Report. While the reports are not expected to be identical, the ADP report acts as a directional bias to economist expectations on each report. If that holds true for May, the market is bracing for a considerably worse employment report this Friday.

ADP showed that the private sector added only 27,000 jobs in May. This is significantly lower than the Econoday consensus estimate of 175,000 and the Wall Street Journal (Dow Jones) consensus estimate of 173,000. ADP revised the April figure to 271,000 from 275,000 as well.

This report comes from ADP’s actual payroll data rather than from a sampling each month for the government’s formal report.

Small businesses, those with fewer than 50 employees, accounted for a drop of 52,000 jobs, with a super-majority (50,000) of those in the one to 19 employees range.

Medium-sized businesses, with 50 to 499 employees, added just 11,000 jobs in May, and the large business group, those with 500 or more employees, added 68,000 jobs. Of the large businesses adding the jobs, an overwhelming majority (59,000) of them had more than 1,000 employees.

Again, this report will not be able to act as a direct jobs barometer down to the number, but it may temper some of the expectations heading into Friday. Oddly enough, the markets may cheer if that is the case because it could usher in a hope that Federal Reserve Chair Jerome Powell and the Federal Open Market Committee will look at cutting interest rates sooner rather than later.

As far as what to expect from the Bureau of Labor Statistics this Friday, Econoday has its consensus estimates for May (versus April) as follows:

• Nonfarm payrolls 180,000 (263,000 prior)
• Private sector payrolls 175,000 (236,000 prior)
• Unemployment rate 3.7% (3.6% prior)
• Labor force participation rate 62.8% (62.8% prior)
• Monthly average hourly earnings up 0.3% (0.2% prior)
• Annual hourly earnings up 3.2% (3.2% prior)
• Average workweek 34.5 hours (34.4 hours prior)

The ADP and Moody’s commentary pretty much put May’s jobs market in perspective with some deep gloom and shortages. Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, said, “Following an overly strong April, May marked the smallest gain since the expansion began. Large companies continue to remain strong as they are better equipped to compete for labor in a tight labor market.” Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth is moderating. Labor shortages are impeding job growth, particularly at small companies, and layoffs at brick-and-mortar retailers are hurting.”

Remember: sometimes bad is good when it comes to the economy and the market reactions. A very weak labor report might mean that the Fed is forced to act sooner than it would have preferred on finding the true equilibrium on interest rates.

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