Whether Wednesday’s ADP payrolls report was encouraging or discouraging is largely a matter of perspective.
On the one hand, any positive number is better than any negative figure, and we did indeed show net job growth for July.
On the other hand, the quality — and pay — of the jobs created last month is questionable. All of them were generally lower-paying service jobs; we actually lost industrial jobs.
Observers of this and other jobs report numbers have also seen the pace of job growth slow since 2014 even though the size of the working-age population hasn’t.
Some would argue that with the nation’s unemployment rate nearing historical lows, a lack of qualified candidates is the biggest job growth bottleneck. Others would argue that corporations’ tepid pay-raise plans for next year says there’s no fierce competition to attract and retain employees.
One thing is for sure, though: Today’s mixed message will put all eyes on Friday’s government-gathered jobs report for July.
ADP Payrolls Growth Lackluster
Click to Enlarge Payroll processing company reported on Wednesday it counted 179,000 new jobs for last month. The figure topped estimates of 170,000, and was up just a bit from June’s total of 176,000.
They weren’t the best of jobs, however. The nation created 185,000 service jobs, and actually lost 6,000 manufacturing positions. The latter tends to pay better, and tend to rise and fall relative to economic activity.
Although July’s jobs report marks the third straight rise in the monthly ADP payrolls figure, the average numbers of late have been weaker than the average growth in 2014 and 2015.
The Rest of the Job Growth Story
As was noted, Wednesday’s ADP payrolls data is viewed as an omen of what to expect when the Bureau of Labor Statistics posts its similar (though more detailed) July numbers on Friday of this week.
To that end, economists are expecting the BLS to report total job growth of 180,000, or only 176,000 when looking solely at the private sector’s job growth. The pros think that should be enough to whittle the unemployment rate down from 4.9% to 4.8%. But, none of those numbers tell enough of the whole story any longer.
There is some validity to the notion that the nation is running out of qualified candidates to fill roles. As of June, only 7.78 million people were officially unemployed — near a multi-year low — and though the nation has added nearly 500,000 total jobs since the beginning of April, the total number of working individuals is actually down about 200,000 since March’s tally.
Click to Enlarge This oddity is explained relatively simply: Most of the people who want a job do indeed have a job, but the number of people who technically want a job is below the historical norm.
The labor force participation rate (the number of people defined as desiring to work, whether or not employed) is still near multi-decade lows, and falling again. Ditto for the employed/population ratio.
The number of individuals not counted as part of the labor force that still want a job continues to fall, but is still at an unusually high reading of 5.69 million as of June.
Hourly wages and the total number of hours worked per week have also been weak and/or weakening since early this year. In this light, Wednesday’s ADP figure is largely being seen as a “glass half full” report.
Bottom Line
As is so often the case, the truth is likely somewhere in the middle. That is to say, a lack of qualified job candidates is at least part of the reason the broad ADP payrolls trend is slowly deteriorating, and at the same time, companies are dialing back their willingness to hire because an economic headwind has been blowing a little too long now.
Whatever the case, the economy certainly can’t thrive if things don’t meaningfully change for the better on this front. Friday’s jobs report from the Bureau of Labor Statistics will either confirm or question last month’s ADP payrolls report is part of a bigger, concerning trend.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
