ADP Jobs +239K, Better than Expected; Markets Drop
Wednesday, November 2, 2022
The monthly private-sector payroll report from Automatic Data Processing ADP is out this morning, with results pointing to a more robust labor market than expected: +239K, versus consensus of +195K and the downwardly revised +192K for September. August’s headline was further reduced to 132K from 1895K originally reported. Pre-markets swung from flat-to-down to moderately down on the news.
Considering the downward revisions to the previous two months, totaling -69K positions filled, this upside surprise to October’s ADP headline of +44K puts us pretty much in-line with expectations overall in the labor market. The 12-month ADP average is +319K jobs, whereas the 6-month brings this down to +262K. So this morning’s tally still lowers this overall trajectory somewhat.
The question is: Will this be enough for the Fed to lighten up today? The answer: No. While a 75 basis-point (bps) interest rate hike is already in the cards for 2pm ET this afternoon, what market participants have been crossing their fingers about of late is a softening of rhetoric in the Fed’s statement, as well as Fed Chair Jay Powell’s press conference directly following. These numbers today — and the economic prints we’ve seen since the last Fed meeting, overall — are not likely to warrant any softening from the Fed, either in word or in deed.
Breaking down this morning’s ADP numbers a bit, the Services sector brought in +247K jobs last month all by itself; Goods producers were -8K. This demonstrates some progress from Construction and Manufacturing numbers we’ve seen representing previous months of late; again, these figures are ultimately moving in the right direction. Friday’s consensus estimate for non-farm payrolls from the U.S. government are +205K. Even that number would likely not sway the Fed from its hawkish perch.
Within those Services jobs, Leisure & Hospitality reclaimed the top spot among jobs-gaining industries, +210K. Trade/Transportation/Utilities reached +84K and Natural Resources/Mining (oil drilling) grew +11K. Otherwise, we do see net-firing from industries like Manufacturing, -20K, and Information, -17K. Medium-sized companies (between 50-499 employees) grew by far the most, +218K, while Small companies rose +25K and Large companies actually shed -4K.
The main issue with the Fed and strong employment numbers is in the opportunities for wage growth, which is obviously a recipe for continued higher inflation. Changes to average pay grew +15.2% for workers who changed jobs over the past year, +7.7% for those who stayed at their current jobs. It’s here the Fed expects to see the stickiest aspects of inflation continue to keep us in orbit above optimum +2% inflation.
Therefore, book the 75 bps hike today, as expected. Don’t bother looking for any semantic changes that would give the markets permission to run higher on a forward Fed outlook. In fact, the stock market itself is something the Fed wants to see muted — again, as a matter of bringing down overall inflation metrics. That said, pre-market futures, while down on the ADP news this morning, did not collapse.
Here’s the real question for today: Is it because investors are still hopeful for kind words from Powell today, or because market levels have already pumped out most of the valuation risk, and don’t see much more downside from here? We shall find out later today.
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