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Private Sector Job Growth Handily Beats Estimates, Buoys Markets

by Jul 7, 2011, 12:44 pm ET

This morning’s news that new private sector jobs quadrupled in June over May’s anemic 36,000, while new unemployment claims dropped by far more than economists expected, is sending stocks higher today.

Payroll processor ADP said its analysis of job growth last month showed the economy added 157,000 private sector jobs. Economists were expecting, on average, that as little as half that many new jobs were added.

Meanwhile, initial claims for unemployment dropped last week by 14,000, to 432,000. That’s the lowest number of new claims in seven weeks and a sharper drop than the 3,000 or so predicted by economists. However, data collection was hampered by the holiday weekend, while Minnesota’s government shutdown added some 2,500 workers to the counts.

Still, the 4-week average of initial filings, a method for smoothing out weekly variations, declined to 424,750, a drop of 3,000 from the week before.

The two reports encouraged investors who bid up the Dow some 81 points at noon, New York time. All other major indices also saw gains.

ADP’s National Employment Report is viewed as a signal of what the official U.S. Department of Labor jobs report will show. That report, scheduled to be released in Washington tomorrow morning, was initially predicted to show jobs growth in a range of about 100,000 to 115,000. Now, some analysts suspect the number could go higher.

The two reports rarely coincide, because of what and how they count, as well as the statistical adjustments each make. ADP’s report is derived from its payroll information, and compiled by its partner, Macroeconomic Advisers. The Labor Department’s monthly employment report is developed from surveys of households and businesses across the U.S., and it includes government workers.

Still, the ADP report indicates the general direction of the nation’s payroll changes, and offers a look at where the job growth is strongest.

The biggest gain came from small business, those with fewer than 49 employees. Those businesses added 88,000 new employees to their payrolls. Another 59,000 new jobs were added by businesses employing between 50 and 499 workers. Larger employers added 10,000 new jobs.

Manufacturing firms of all sizes added 24,000 jobs; the service sector accounted for 130,000 new jobs.

“Payroll employment growth at this pace usually implies a steady unemployment rate, perhaps even a modest decline,” said Joel Prakken, chairman of Macroeconomic Advisers. “June’s figures suggest that the economic recovery, which slipped in the spring, might have found new traction in early summer.”

A CareerBuilder survey released today offers support for that view. CareerBuilder says 47 percent of the 2,600 hiring managers and HR professionals surveyed expect to hire more workers between now and the end of the year. That’s up from the 41 percent who planned hiring last year.

CareerBuilder offered these highlights:

  • Hiring full-time, permanent employees — 35 percent, up from 28 percent in 2010;
  • Hiring part-time employees — 15 percent, the same as 2010;
  • Hiring contract or temporary employees — 12 percent, up from 9 percent in 2010.

The survey does suggest that companies are cautious in making predictions about their hiring plans. CareerBuilder says that actual hiring in the last eight quarters exceeded hiring predictions. One of the challenges in filling positions is finding workers with the right skills, say the HR managers in the survey. Thirty-six percent say they have open jobs for which they can’t find qualified candidates, an increase from last year’s 32 percent.

Turnover is also a problem, with 18 percent of the survey participants reporting they lost top workers in the last quarter. In the first quarter of the year, 14 percent said they lost a top performer.

This article is provided for informational purposes only and is not intended to offer specific legal advice. You should consult your legal counsel regarding any threatened or pending litigation.