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The incredibly bad payroll data from ADP released on Wednesday may be overestimated.
Economists say the monthly ADP report does not always match the government jobs report. So far, they have not yet lowered expectations for the government's non-farm salary data for the month of May. However, some warn that Refinitiv's consensus forecast for 185,000 jobs may be a bit too high following the ADP software report.
Mark Zandi, chief economist at Moody's Analytics, said he expects to see 150,000 new jobs in May, one of the positive catalysts that can result from hiring by the government of enumerators. The ADP report is published in collaboration with Moody's.
According to Zandi, the weak ADP data in May showing that only 27,000 new jobs in the private sector could have been skewed by the sharp drop in jobless claims in April, dropping to its lowest level in 50 years, followed of a fast rebound. Just as this has created an unusual dip in ADP's employment forecast for the month of May, fluctuating weekly claims data has propelled ADP's wage forecast for April to 271,000. jobs. The government's April report was 263,000.
But Zandi said the total number of ADP payrolls, which is not published, shows a slowdown in the labor market, which was also present last month.
Wednesday's report, however, raised doubts about the strength of the labor market, as economists expect more and more the Fed to lower interest rates. In the bond market, the 2-year yield, which best reflects the Fed's policy, fell to 1.75%. According to NatWest Markets, the Fed's expectations for rate cuts in the futures market have gone from two this year to nearly three this year.
"Last month, [ADP] exaggerated the force. This month, he exaggerated the weakness. The reality is that employment growth is slowing down, especially, but overall, it remains strong. I would take a two-month average of 150,000, and we are 150,000, Zandi said. This figure is well below 225,000 last year, but remains above the 100,000 needed to maintain a stable job. "
According to Zandi, President Donald Trump's trade policy will determine what will happen in the labor market, which has been very strong with a low unemployment rate of 3.6% in recent decades.
"It is on the edge of the razor, it depends entirely on what the president decides to do with the tariffs," Zandi said. "If he escalates and carries out his threats, I think the recession is likely.If he calls a truce and we stay where we are, I think the economy will stabilize around of 100,000 this year next year, the tariff war, we have a rising potential. "
Michael Gapen, chief US economist at Barclays, sees the ADP report as an anomaly and expects a 175,000 increase in May's non-farm payroll. However, Gapen also expects a slowdown in job growth and a weakening of the economy, which he says will force the Fed to reduce its interest rates by 75 points. basis this year.
"It looks like a shadow of 2015 and 2016. While the goods-producing sectors are slowing down, hiring is also slowing down," he said. "In 2015, 2016, the service sector was OK."
Earlier Wednesday, non-manufacturing ISM data showed that economic activity in the services sector had increased in May, from 55.5% to 56.9%. Employment also improved in the services sector, registering growth of 4.4 points to 58.1%. ISM Manufacturing data showed that activity had declined to 52.1%, its lowest level since October 2016, but that hiring in the manufacturing sector has progressed.
Gapen said that job applications, at around 216,000 last week, and that other measures were not sending negative signals to the job market.
"ADP underscores an emerging theme that the economy is slowing down and that with the threat of additional fees, it is now likely to contract more quickly," said Diane Swonk, chief economist at Grant Thornton. "Our forecasts are based on the joker on census recruitments.In the absence of a revival of recruitments by census, the growth of payroll in the private sector is expected to slow down."
Daniel Silver, US economist at JP Morgan Chase, said in a note that he is still waiting to see 160,000 non-farm jobs in the Labor Department's report on Friday. "But the May [ADP] reading alone was the smallest monthly change since May 2010 and certainly raises the possibility that the job market will weaken more than expected. "
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