ADP, other disappointing data raise specter of spring U.S. slowdown
April 3, 2013, 10:44 AM
The ADP jobs report for March is the fifth economic indicator in the past week to disappoint investors with a lower-than-expected reading. Is it a sign the U.S. economy is going to slow down in the spring and early summer for the third year in a row? Maybe, but it’s too soon to tell.
The payroll-processing firm ADP on Wednesday said the private sector generated 158,000 jobs in March, well below the MarketWatch forecast of a 215,000 gain. The pace of hiring was revised up sharply in February, but that tells us little about where the economy is headed in the second quarter of the year.
Three other economic signposts have also suggested some potential trouble ahead. The consumer confidence index for March fell to 59.7% in March from 68.0% in February. Jobless claims shot up above the 350,000 mark last week for the first time in a month and a half. The ISM manufacturing index softened to 51.3% last month from a nearly two-year high of 54.2% in February. The ISM services index of 54.4% certainly wasn’t bad, but it was worse than consensus and the lowest reading since August.
Most economists have already penciled in a slowdown in growth in the second quarter. Gross domestic product is forecast to drop to 2.2% from an estimated 2.8% in the first three months of the year, based on the latest MarketWatch forecast. Growth is expected to re-accelerate in the final six months of 2013, but not in a big way.
Over the next few months economists expect consumers to trim spending and boost savings, which dropped sharply after taxes went up in 2013 and gas prices surged. Businesses are likely to rebuild inventories at a lower rate after stocking up in the first quarter. The federal government is cutting some spending under a law known as the sequester. And the global economy is still soft, limiting the upside for U.S. exporters.
For now the prevailing view is these headwinds won’t slow the economy dramatically. Analysts point to rising business investment, the recovering housing market and improved state and local budgets as fuel for faster growth later in the year.
Nonetheless the government’s official employment report for March gains added importance because of the disappointment in the ADP numbers and other data. If job creation in March also falls below Wall Street expectations, bullish U.S. stock investors could turn a little more bearish.