This morning, ADP (ADP), the nation’s largest payroll processing firm, released its estimate of job losses in August. They came in at a decline of 298,000 jobs for the private sector. This is significantly worse than the consensus expectations of a decline of 250,000.

There was a little bit of good news in the report in that this is still an improvement over the 360,000 lost in July — a number that was revised from an original read of 371,000 jobs lost.

The losses in August were almost evenly split between the Goods Producing Sector (Construction & Manufacturing), which lost 152,000 jobs, and the Service sector, which dropped 146,000.

By size of business, the big firms are holding up best with a decline of 60,000. Medium-sized firms (between 50 and 499 employees) shed 116,000 jobs while small businesses slashed their payrolls by 122,000.

Even the Auto industry, which benefited from the Cash for Clunkers program in August, dropped 74,000 jobs. Ford (F) and General Motors have recently announced production increases and are calling some workers back, but it did not show up in the August numbers.

However, in a separate report, the big outplacement firm Challenger, Gray and Christmas reported that layoffs dropped to 76,000 in August — a 21% decline from July. Generally, however, the ADP data set is bigger and gives a more accurate read on the employment picture than does the Challanger data.

While we have seen many indications that the economy is starting to recover, it has not yet translated over to the employment picture. On the plus side, this should be very good for corporate profits, since the pick-up in sales has not been matched by a increase in labor expense.  On the minus side, it will be very hard to sustain a recovery if people do not have jobs (and the income from having them).

It is not as if people can take on debt to tide them over and keep spending anymore. They were able to do so in the last recession since the housing ATM was still working. Not the case today, when most people have very little equity in their houses (or are underwater in them).

The ADP report sets the stage for the Government employment report. As of this morning, the consensus estimate was that it would show a decline of 225,000 jobs in August. The numbers are not directly comparable to the ADP numbers since ADP only covers the private sector. However, it is not likely that the government added 73,000 jobs in the month — not with the stress that state and local governments are under with falling sales and property tax revenues.

ADP and the Bureau of Labor Statistics have disagreed in the past. After all, the BLS number in July was a decline of 247,000, which is much lower than the even revised -360,000 number from ADP. Still, I think the ADP numbers will make people a bit more pessimistic going into Friday’s big report.

One of the key things to look for in Friday’s report will be the length of the average work week, since businesses will first start to extend the hours of the employees they have when things pick up, and then only later when they feel confident that the recovery is sustainable will they bring more hands on deck.

I will also be looking closely at the indicators of unemployment duration. Being out of work for almost a year is a very different experience — and one with vastly different economic consequences — than being out of work for just a few weeks. This recession has been extreme in the length of time people spend on the unemployment line once they are laid off.
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