This morning, Automatic Data Processing (ADP), the biggest payroll processing firm, estimated that the economy lost 203,000 private sector jobs in October. That was more than the consensus estimate of 190,000 jobs lost. However, the September job loss numbers were revised to a loss of just 227,000 from the original read of 254,000. Thus the losses are coming from a higher base level, and if the revisions are included, this report was in line with consensus or perhaps a bit better.

Still, it indicates that while the economy might be expanding, employment isn’t. However, this is the seventh straight month where ADP has seen fewer jobs lost than the month before. This is similar to the pattern that we saw following the last two recessions.

While employment has always been considered a lagging indicator, it has been becoming more so with each passing decade. In part this reflects the changing nature of the workplace, with manufacturing jobs making up a much smaller part of the total.

Also, this time around an unusually high percentage of the job cuts are of the permanent variety (see “Permanent vs. Temporary Layoffs”). The graph below, originally from the Atlanta Fed, was also used in that post. The job loss numbers are a net number, with new jobs created offsetting other job losses.  The rate of layoffs has slowed down, but the rate of job creation has not yet picked up (see “It’s the Lack of Job Creation, Stupid!”).

By sector, ADP saw 86,000 jobs lost in the service sector, which is far larger, but more stable than the goods producing sector. The service sector losses included 18,000 from financial services — the 23rd straight month of declines there. The goods producing sector lost 117,000 jobs, including 65,000 in manufacturing and 51,000 in construction.

The read on manufacturing is in direct contrast with the ISM manufacturing survey which came out on Monday and indicated that manufacturing was actually gaining jobs in October. We will see on Friday which one was right when the Bureau of Labor Statistics  (BLS) comes out with the official employment numbers. The consensus for the BLS (which includes government jobs, while ADP does not) report is for a decline of 175,000 jobs. The ADP report might make people a little bit more inclined to take the over on that number, but I don’t think by a lot.

By firm size, it looks like large firms, which tend to have better access to financing, are faring better than their little brothers. They lost a total of 53,000, while medium and small firms each lost 75,000 thousand. Traditionally, small businesses are one of the main engines of job creation in the country, something I wrote about here: “A Rarity: The Small-Business Loan.” However those numbers are a little bit deceptive since small businesses employ more people overall than do large businesses.

Specifically, there are 17.9 million people working for firms with more than 500 employees, 42.3 million working for firms between 50 and 499 employees and 48.1 million working for firms with fewer than 50 workers. Thus on a percentage basis, large employers dropped 0.3% of their payroll in October, while medium-sized firms dropped 0.18% and small firms dropped less than 0.16%. As evidenced by the announcement yesterday by Johnson & Johnson (JNJ) that it would be trimming back its worldwide workforce by 7%, even the largest, most well-financed and stable of companies have not been immune from layoffs in this cycle.

All of this, however, is prelude to the big number on Friday. The September number was a major disappointment after months of steady improvement. The October report (and the revisions to September and August) will tell us if that was simply a temporary aberration, or the start of a new trend that we should be worried about. My gut tells me that it was an aberration.

The economy is getting back on track, but it seems like it is likely to be stuck in first gear for a while, but at least that is better than going in reverse. Of course there is a bit of a “chicken-and-the-egg” problem, since continued job losses tend to hurt the economy and can lead to further job losses.

A rising unemployment rate at a level over 10% is a recipe for Scrooge to rule Christmas, not Santa. However, it looks as if the fiscal and monetary stimulus program have managed to break that vicious cycle enough to generate at least some economic growth, but not yet enough to cause net job growth. History suggests that it will come, but might take a few more months.


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