Automatic Data Processing (ADP) reported that 32,000 new private sector jobs were created in April. That was slightly ahead of expectations for a 30,000 increase.
As the nation’s largest payroll processor, ADP is in a unique position to assess the health of the job market, although their numbers are often fairly different from the official Bureau of Labor Statistics (BLS) numbers, which will be released in Friday morning.
More significant than the beat of expectations of 2,000 was a huge revision to the March numbers, an increase of 42,000 from a decline of 19,000 to an increase of 23,000. That still leaves the ADP numbers far short of the 123,000 of private sector jobs the BLS reported in March. However, we now have three straight months of job gains, according to ADP.
Mid-Sized Businesses Hired the Most
While small businesses are usually seen as the main engine of job creation, that was not the case in April. Small businesses, those with fewer than 50 employees, added only 1,000 to their payrolls in the month. Medium-sized businesses, those between 50 and 499 workers, added the most with 17,000 new hires on the month, while businesses with 500 or more employees added 14,000.
Considering that in total, medium-sized businesses employ 41.107 million people, while big business employs just 17.498 million, on a percentage basis, big business was the strongest, with an increase of 0.08% versus 0.04% for medium-sized businesses. The percentage gain for small business, which employs the most at 48.196 million, was just 0.002%.
Results by Sector
The goods-producing sector lost 18,000 jobs, as continued losses of construction jobs swamped healthy gains in manufacturing employment. Indeed, the losses in construction seem to be accelerating, falling by 49,000 in April after a 38,000 decline in March. This was the 39th month in a row the country has lost construction jobs.
Manufacturing, on the other hand, gained 29,000 jobs. That is a major acceleration from gains of 3,000 in March and 5,000 in February. The gains in manufacturing jobs confirm the ISM manufacturing survey that came out on Monday, which showed the employment index at 58.5, up 3.4 points on the month. Though the ADP numbers still seem a bit light relative to the ISM numbers, at least they are pointing in the same general direction (and there is not a direct correlation between the two sets of numbers, but they should generally tend to confirm each other).
It was in the goods-producing sector where the small business under-performance was most apparent, as small goods producing firms lost 24,000 jobs, while medium-sized goods producing firms lost 3,000 and big goods producing firms like Ford (F) and Caterpillar (CAT) added 9,000 jobs. A lot of small contracting firms in construction seem to still be struggling.
The goods-producing sector is a relatively small part of overall employment, with a total of just 17.565 million jobs. Big firms are an even smaller part, with a total of just 3.466 million. Goods-producing jobs, however, tend to be much more volatile, with employment generally rising more during expansions, and almost always falling more during downturns. As a result, in terms of economic impact, goods-producing firms tend to “punch above their weight.”
The service sector, on the other hand, gained 50,000 jobs in April, and the small business part did much better with a gain of 25,000 jobs. However, relative to their overall sizes, the gains in medium sized businesses were virtually identical to the gains in small service businesses at 0.06%, and while big firms still lagged when adjusted for the total number of people employed, it was not as dramatic with jobs up 0.04%.
In Summation
Overall, this was a pretty solid report, particularly the upward revisions to March. The upswing in manufacturing jobs is encouraging, but one has to wonder if the recent surge in the dollar due to the never-ending Greek drama is not going to start undercutting the competitiveness of those firms. After all, manufactured goods are easily the most exposed part of the economy to international trade. People in China don’t build buildings in Chicago, but they can and do produce the stuff that people put into those buildings.
While some services are traded internationally, that vast majority of international trade is in goods, particularly manufactured goods. The strong dollar is likely to undermine our ability to export them, and also make goods from abroad more attractive to consumers here. On the other hand, a strong dollar will keep inflation at bay — not that it is a big problem now — and will be one more reason that the Fed will be able to keep interest rates low for a very long time to come.
Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.
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