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Private-Sector Payrolls Lower-than-Expected

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The first of two major employment reports has been released this morning, and for the second month in a row, Automatic Data Processing ADP has disappointed expectations with a lower-than-expected print on private-sector payrolls for the past month: 374K is the headline ADP print, well off the expected 600K. The previous month, also lower than expected, was revised down 4000 to 326K.

Goods-producing jobs made up 12% of the monthly total, or 45K. Services created 329K for the month, led as usual by strength in Leisure/Hospitality at 201K. Education/Health Services came in with 59K, which is also roughly as strong as could be expected. Then the drop-off happens: Professional/Business Services brought only 19K, Trade/Transportation/Utilities were 18K and Financial 13K.

Thus, normal business investment in workforce has lagged for the second-straight month. Whether this has to do with threats of the Delta variant or some other reason is difficult to ascertain. Because these are private-sector reads, ADP is likely not picking up any public school employment or other government work. In any case, August’s tally is less than half the 882K private-sector payroll jobs registered back in May of this year.

Will this put downward pressure on Friday’s nonfarm payroll headlines from the U.S. Bureau of Labor Statistics (BLS)? Last month’s BLS total was in another stratosphere from the ADP: 943K in July compared to the originally reported 330K. Some of this vast discrepancy is no doubt due to government employment, but not more than half a million jobs per month. As a rule of thumb, ADP and BLA figures tend to even out over time.

To be clear, 374K new jobs filled in a single month (in late summer) is far from a disaster. But with expectations for employment significantly higher than the labor market has delivered, the question becomes: are private-sector jobs overdue for a big jump in future months, or are analysts in need of recalibrating their expectations? Again, time will tell.

After today’s opening bell, we get two important manufacturing reads: Markit Manufacturing PMI (final) and ISM Manufacturing, both for August. PMI is expected to come in-line with the previous 61.2, while ISM looks to dip a tad to 58.6%, which would be the weakest performance since January of this year. We'll also see Construction Spending for July, which is expected to tick up a bit. Also, we’ll get August motor vehicle sales throughout the day.

At this hour, the Dow looks to bounce back from two mild down days, +100 points in today’s pre-market. The S&P 500, which took a breather from a new record-setting closing level, is up +15 points. The Nasdaq, also down a tick from its previous day’s latest all-time high close, is +60 points. Perhaps the attitude of market traders regarding the weak ADP report is: we have good news to look forward to in the future.

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