ADP Jobs Report is a Shocker, Seen as a Red Flag

Logo for ADP

On Wednesday, the country’s largest payroll processor, ADP, announced that private-sector employers hired 27,000 people in May. This number was a dramatic reversal from their report on April hiring, which said employers added a remarkable 271,000 people. Many economists and market analysts expressed shock at the surprisingly low number.

See more on ADP’s May hiring numbers…

Every month, ADP produces what is known as the ADP National Employment Report, based in part on the data generated from their vast payroll processing business (they issue payroll to 24 million Americans). This is viewed as a leading indicator to the more official government’s Labor Department jobs report which is due out tomorrow.

Although the two reports can vary from each other, over time they tend to track the other pretty closely – even though they are compiled through completely different methods on different data.

The Smallest Increase in Jobs Since March 2010

This 27,000 gain in May jobs is the smallest increase in jobs since March 2010, when the country was coming out of the last recession. Economists were caught totally off-guard by this reading – a survey of economists had forecast a jobs gain in May of 175,000 (Econoday). This low reading now adds a tremendous amount of drama (and nervousness) in advance of the government’s official employment report hitting Friday.

Graph showing ADP's historical jobs readings over the last year
ADP’s National Employment Report results over the last year. Economists were surprised by the very low reading for May 2019, a dramatic reversal from April’s reading and about 90% lower than May 2018. You have to go all the way back to 2010 to find a worse reading.

Who Got Hit the Hardest? Small Employers

One thing that is easy to see from the report however, is that the sector hit hardest in jobs was small businesses – those companies with less than 50 employees. According to the ADP data:

  • Large companies with 500 or more employees – saw 68,000 jobs added
  • Midsized companies with 50-499 employees – saw 11,000 jobs added
  • Small companies with 1-49 employees – saw 52,000 jobs cut in May

“Job growth is moderating. Labor shortages are impeding job growth, particularly at small companies, and layoffs at brick-and-mortar retailers are hurting.”

Mark Zandi, chief economist at Moody’s Analytics

Drama Builds for Gov’t Data Being Released Tomorrow

So all eyes turn to the impending government report on employment to be released on Friday. Historically, there have been variances between ADP’s results and the government results. However, over time their trends tend to come together pretty closely, as you can see in the chart below.

Chart of ADP jobs report as compared to government data showing minor variances
The purple trace is the Labor Department’s results and the gray trace shows ADP’s. Note that while there can be month-to-month variances, more broadly they generally track each other’s trends closely.

Last month, for example, ADP reported initially that employment had grown by 275,000 jobs in April. The Labor Department reported a 263,000 increase in employment. ADP ultimately revised their report down to 271,000 jobs for an even narrower gap. That’s a difference of only about 3% between the two reports.

About Ted

A sales and marketing specialist - primarily in the technology industry - I've experienced a sort of "circle of life" in business. I've been a mass merchant retailer, a specialty retailer, a specialty manufacturer, a large volume manufacturer, a distributor, and even represented sales representatives. Now the owner of a marketing company that works with a variety of businesses on improving their strategic marketing and business development - I analyze issues from all angles to develop holistic solutions.

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