Economists Optimistic Following Strong June Jobs Report From ADP

Jul 2, 2014

ADP job growth chart june 2014With a private sector jobs report from ADP estimating that employers added 281,000 jobs in June — the most in almost two years — the expectation is that tomorrow’s official government report will also be a strong one.

Labor economists were taken by surprise by the strength of the ADP report. In advance of this morning’s release , surveys by Bloomberg News, Dow Jones and others put the average guesses of various analysts between 205,000 and 213,000.

Mark Zandi, chief economist for Moody’s Analytics, which compiles the numbers from ADP payroll processing records, was optimistic about the direction of the economy.

“The job market is steadily improving,” he said. “Job gains are broad based across all industries and company sizes. Judging from the job
market, the economic recovery remains fully intact and is gaining momentum.”

Every category in the ADP report increased headcount. The service-sector grew by 230,000 jobs. Goods-producers added 51,000, lead by a 36,000 jobs increase in construction, the largest jump for the industry since February 2006.

Manufacturers also showed continued strength, adding 12,000 jobs in May. In the last 12 months, manufacturers increased hiring by 92,000 workers.

Other industries:

  • Trade/transportation/utilities +50,000
  • Financial activities +11,000
  • Professional/business services +77,000

“It all points to a relatively optimistic outlook,” Lewis Alexander, U.S. chief economist for Nomura Holdings Inc. in New York, told Bloomberg News. “Businesses are seeing demand and the fact that they’re hiring supports that.”

June 2014 econonic data chartADP’s numbers — and the jobs data from the Bureau of Labor Statistics, which will release the government’s unemployment and jobs numbers tomorrow morning —  adds to the evidence that the anemic first quarter of the year was indeed the weather induced fluke economists claim.

The negative 2.9% change in the gross domestic product reported by the Commerce Department last week, was the sharpest reversal in five years. J.P. Morgan Chase economist Michael Feroli, quoted by The Wall Street Journal, attributed the decline to a confluence of “mostly one-off, factors.” However, he worried over “how much vigor there is in the pace of activity.”

Construction job growth, a strong sign of overall economic improvement,  offered evidence that economic momentum was picking up. The numbers also bolstered a report this week from the National Association of Realtors, showing a 6.1% increase in pending home sales. Economists predicted the increase would be 1.5%.

Meanwhile, the Institute for Supply Management said, “Economic activity in the manufacturing sector expanded in June for the 13th consecutive month.” Though its overall index was off .1% from May’s 55.4%, the New Orders Index jumped two points in June to 58.9%.

The ADP report showed that that the small and mid-sized employers continue to be jobs generators. Here’s how ADP reported job growth by employer size:

  • Small businesses: 117,000
    • 1-19 employees 66,000
    • 20-49 employees 51,000
  •  Medium businesses: 115,000
    • 50-499 employees 115,000
  • Large businesses: 49,000
    • 500-999 employees 16,000
    • 1,000+ employees 32,000

If the government report comes in close or even better than the 210,000-215,000 new June jobs economists predict, it will give the economy it’s fifth consecutive month of +200k job growth. The unemployment rate is expected to be unchanged at 6.3%.

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