In his latest “Matzoh with Dave” note, Gluskin-Sheff’s David Rosenberg sounds off on yesterday’s weak ADP report:The U.S. ADP private payroll data showed that 23k jobs were shed in March, the 26th
decline in a row.
That brings the cumulative decline in private payrolls to 8.33
million, which is unspeakable, and at 106.7 million, the level of private sector
employment is now at a record low for this survey (back to December 2007).
Question is — what sort of leading indicator was that? Answer — an awful one. By
June 2000, employment started to stagnate and by January 2001, it started to
contract. To have shaped your view on the economy because of transitory effects
from Census hiring would have been a terrible mistake.
We saw the same pattern in retail sales — these part-time Census workers did
indeed help bolster consumer spending through the spring of 2000, but in the
second half of the year, retail sales were either flat or negative in five of the six
months. So, like cash-for-clunkers and homebuyer tax credits last year, these
temporary skews to the economy only end up distorting the incoming data and
borrow growth from the future (these new hires by the government will roll off
after May-June). Come to think of it, in the year following the Census, back to
1960, all the economy could do was turn in average 1.8% growth rate — not
recessionary but far below potential and definitely non-inflationary.
All of the March loss in the ADP was in the small business goods-producing
sector. This sector does not have the same access to credit or foreign markets
as the large-cap companies do. Small business goods-producers reduced their
payrolls by 27k, and so far this year, have accounted for 75% of the total job
decline in the private sector (even though this segment only represents a 6%
share of the employment pie).
Service sector employment rose across the board — up 28k in total, which was the
best tally since March 2008. Manufacturing, despite all the flashy regional surveys,
fell 9k last month and hasn’t posted a meaningful increase in over four years.
The bottom line is that the consensus was looking for +40k on ADP and it came
in at -23k. It remains to be seen as to what this means for tomorrow’s nonfarm
payroll report — after all ADP has overstated the weakness in nonfarm now
(private sector component) in 7 of the past 8 months and by an average of 40k.
So, either this is yet another case of ADP undercounting or it could be a case
where nonfarm payrolls have to play some catching up.
That said, the ADP data do tell us that we are still in the throes of the mother of
all jobless recoveries. If indeed the technical recession ended last summer,
which is an assertion, by the way, not supported by the real GDI data, then if this
were a normal environment we would be seeing private sector job gains of at
least 150k by now.
For the rose-coloured crowd, it doesn’t matter. If employment is weak then
profit margins will remain elevated. So buy stocks. And if employment starts to
expand then top-line revenue growth will be underpinned. So buy stocks.
Ahhhh, the life of the perma bull is to be envied.
Remember that the ADP data do not include the Census hiring, which is a key
reason why practically everyone has a decent-sized payroll estimate for tomorrow.
So far, the Census hiring have been very low. When this happened in 2000,
March proved to be a very big month (+87k excluding postal federal government
hires … and a whopper of a +472k print on the headline that month!)
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