Weak ADP Numbers May Dampen Hopes
Wednesday, June 4, 2014 The weak labor market report from ADP (ADP) will likely dampen expectations for Friday’s all-important government jobs report. Next on the docket is the service sector ISM survey, which comes out a little later. The ADP jobs tally missed expectations, likely suggesting that the Spring rebound following the Winter slump may be less robust than many are looking for. Other economic data has been showing a similar mixed trend: some data points are very strong while others are only modestly so. Tuesday’s motor vehicle sales numbers and Monday’s manufacturing ISM survey, notwithstanding the release flip-flop, would fall in the strong category. But Retail Sales, Durable Goods and some of the housing indicators have been on the weak side, though the construction jobs tally in today’s ADP read are not showing weakness. If this morning’s ADP report is a true reflection of underlying trends in the labor market, then expectations for Friday’s government jobs report likely need to come down. The market is looking for a material ramp-up in GDP growth from the second quarter onwards, with GDP growth going above the +3%-plus pace in the second half and continuing into 2015. This economic outlook is at the root of strong corporate earnings estimates as well. We didn’t see much earnings growth in 2014 Q1, but the market is pricing in a strong rebound in the second half of the year and beyond. Data along the lines of Monday’s ISM are keeping these hopes alive. Sheraz Mian
Director of Research
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