Did ADP Just Accidentally Trash the Employment Recovery?

The financial markets just got a small glimpse of what to expect from Friday’s key U.S. Department of Labor report on unemployment and payrolls. The August ADP National Employment report showed that the private sector payrolls increased by 428,000 jobs from July to August. While this is another month of gains for the economic recovery, it was handily below expectations and may set a softer tone for Friday’s government report.

As for August’s consensus expectations, Econoday was calling for 900,000 new jobs and the Wall Street Journal was calling for gains of 1.17 million. July’s ADP payrolls figure was revised to 212,000 from the preliminary report of 167,000.

Small businesses accounted for 52,000 of the monthly gains in August, and medium-sized businesses with 50 to 499 employees accounted for 79,000 additional payrolls. The category for large businesses (500 or more employees) added just 28,000 jobs in August.

Goods-producing sectors added 40,000 jobs and the services sector added 389,000 jobs in August. The category for trade, transportation and utilities added 58,000 jobs, and the category for professional and business services added 66,000 to the payrolls. The category for education and health services added 100,000 jobs in August, and the category for leisure and hospitality added 129,000 jobs.

ADP’s actual reports are no longer treated as an exact predictor for the Labor Department’s key payrolls report, but the direction and the magnitude of the beat or miss tends to create a bias for how economists and investors will look at the coming report. ADP’s monthly payrolls gain was less than half of what was expected, so it seems that the bias for Friday’s payrolls may have to come down as well.

Econoday is calling for a gain of 1.4 million in nonfarm payrolls and 1.358 million in private sector payroll additions for August. The Wall Street Journal has a consensus of 1.32 million nonfarm payrolls added for August.

The financial markets have so far shrugged off the softer than expected recovery numbers. After about 45 minutes of trading, the S&P 500 was up almost 16 points at 3,542 and the Dow Jones industrial average was up 178 points at 28,823.