With the May non-farm payroll report coming out Friday morning, the market’s focus remains on the labor market. And we got a less-than-reassuring glimpse of the jobs picture through the weaker-than-expected report this morning from payroll processor Automatic Data Processing (ADP).
ADP reported that 38 thousand private sector jobs were created in May, which was short of expectations in the 190 thousand vicinity. If this is a true reflection of the jobs picture in May, then we better brace ourselves for a major negative surprise from the Bureau of Labor Statistics (BLS) on Friday. Either way you look at it, today’s ADP report is not a good sign for the economic recovery.
ADP’s position as the nation’s largest private-sector payroll processor provides it an excellent vantage point from which to read changes in the nation’s labor market. The ADP report did not do a good job of foretelling the government jobs numbers in the winter months, but has not been that far from target lately. The payroll processor reported jobs gains of 179 thousand in April, 217 thousand in March, and 207 thousand in February, which were confirmed days later by private-sector jobs of 268 thousand, 231 thousand, and 217 thousand in the BLS report.
Given ADP’s recent track record, expectations for the Friday BLS number will most certainly be revised downward from the current level of above 200 thousand private-sector jobs. While disappointing, the report is consistent with the recent soft economic readings, which have been prompting downward adjustments to GDP growth estimates for the current quarter. A materially soft number on Friday will likely prompt downgrades to second-half 2011 growth estimates as well, which have thus far remained essentially unchanged.
The earnings season is effectively over, though we do have a couple of noteworthy reports. Discount retailer Dollar General (DG) missed EPS expectations this morning, as higher commodity costs and increased markdowns weighed on gross margins. But the discounter had solid same-store sales numbers and came ahead of top-line expectations.
We got a good earnings beat from Phillips-Van Heusen (PVH), the maker of Calvin Klein and Tommy Hilfiger branded apparel, after the close on Tuesday. A slew of rating downgrades are hitting Nokia (NOK) after the handset maker warned on its sales outlook Tuesday.
Today is a busy day on the economic calendar, with the ISM Manufacturing Index for May coming out and the Treasury Secretary testifying in the House. And the Greek debt story is not going away, with the Europeans expected to kick the can down the road some more by providing another bailout.
But the focus will remain on the domestic jobs picture. Today’s disappointing ADP report is another reminder that the U.S. economy is still not producing enough jobs to make a major dent in the unemployed rolls. It will be very difficult to accelerate the economy’s growth momentum in the absence of a credible labor market turnaround.
AUTOMATIC DATA (ADP): Free Stock Analysis Report
DOLLAR GENERAL (DG): Free Stock Analysis Report
NOKIA CP-ADR A (NOK): Free Stock Analysis Report
PHILLIPS VAN HE (PVH): Free Stock Analysis Report
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