Lagging” ADP calculation could underestimate actual jobs growth
Non-farm Payrolls probably rebounded in March, making up for a murky February reading. Back in February the reading hit a 17-month low, with only 20K jobs added. Usually the start of spring supports activity in construction while manufacturing PMIs signaled about continuing revival in production sector.
The pace of construction spending accelerated in first two months of 2019 – by 2.5% in January and by 1.0% in February. The positive NFP report should shift the balance of arguments in favor of a transitory slowdown in the economy, which the Fed still has faith in. This will certainly underpin hopes that the US Central Bank won’t step into the ECB shoes as US policymakers attempt to maintain neutral tone of the comments. In doing so, the Fed would basically be acknowledging that the ECB’s early tightening was a mistake.
However, the US jobs market is unlikely to repeat the feat of last year. Coming at the height of fiscal stimulus, while firms face increasingly strained labor shortages and tightened credit conditions that constrain capital spending.
The rise in jobs is expected at 180K in March, while unemployment probably nudged higher, to 3.8%. These number are the median estimate of experts polled by Reuters. Some attention should be paid to the revised February reading, which should additionally smooth concerns over the slack in the labor market.
It is likely that the economy has moved to a lower gear because of the damping effect of the tax reform, which apparently could not ensure much desired “self-sustained” growth. The decline in trade due to the rivalry of Beijing and Washington for technological leadership, as well as a slowdown in foreign demand, stoked concerns that longest streak of economic expansion may be soon brought to the close.
In the first quarter it is expected that the economy will grow by 1.4% – 2.1% in annual terms. The fourth quarter GDP was revised from 2.6% to 2.2% due to a sharp decline in retail sales, which is one of the main components of consumption. In turn accounting for almost 70% of the aggregate demand.
The ADP report released on Thursday, estimated job growth in March at 129K, somewhat limiting optimism about today’s report. On the other hand, the ADP calculation model includes data from past months, as well as information about jobs coming not directly from companies. So, the February slowdown could have affected the March indicator. Econometric studies show that the official data was lower than the ADP when temperatures in the first two months were below seasonal norms. However, with improved weather, the Ministry of Labour often exceeded their estimate the ADP reading. It is difficult to accept the assumption that the ADP data for March caught a real weakness of the labor market, especially in light of more than encouraging figures on the initial jobless claims for March
The chart shows that in February, the increase in jobs (by 20K) was also accompanied by the persistent rise of jobless claims data, beyond initial estimates. Unemployment claims were in a downward trend in March, helping markets to price in positive reading of the NFP.