NFP: much ado about very little

The dismal set has gotten all hot and bothered over the preliminary ADP data, thought by some to be an early read on the NFP report. According to  National Employment Report from Automatic Data Processing, the "private sector added a seasonally adjusted 368,000 nonfarm jobs in June."

It turns out that the ADP data is compiled, seasonally adjusted, and massaged in a very different manner than BLS does.

Regardless, its actually much ado about very little. Although NFP is eagerly awaited each month by wonks of all stripes (present company included) today’s number is unlikely to represent a significant departure from the well established trend that has developed since the 2001 recession ended.

One point does not a trend make. And even if today is a killer number, we have seen what’s been in place for nearly 5 years — and it has been none too encouraging.

Why? The simple fact is that this recession recovery cycle has been historically very weak in terms of private sector job creation. Indeed, depending upon how you measure it, this is the first or second worst cycle since WWII.

The present cycle is overly dependent on government jobs. Its seen a hugely disproportionate number of private sector employment overly Real Estate reliant. These positions are more the product of government stimulus — i.e., ultra low rates — than they have been of an organic nature. Further, many of the remaining non real estate jobs have been disproportionately of the lower paying / weaker benefit variety than the jobs they are replacing.

And as the recent spate of layoffs in construction, mortgages, and real estate brokerage reveals, as rates rise the new jobs turn out to be somewhat more temporary in nature than originally believed.

So regardless of the outcome of today’s report, it is but one number in an ongoing series. And the prior series has been rather disappointing from a macro perspective.

Prior to the ADP report’s release, the consensus was for 170,000 nonfarm jobs; that’s now been bumped up to 200k.

I’m sticking with the under.

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  1. Brian commented on Jul 7

    121! wow….

  2. JoshK commented on Jul 7

    “Indeed, depending upon how you measure it, this is the first or second worst cycle since WWII.”

    Depending on how you measure it. Sure, depending on how you measure it, the Earth is bigger than the sun. 4.6% is an awesome #, and the Fed is going to tighten.

    Just a matter of time and the 10yr will be out at 8%.

  3. erikpupo commented on Jul 7

    Earnings up 0.5%. That also seems to indicate wage pressure beginning to creep up….

  4. V L commented on Jul 7

    Economy is slowing but wage inflation is picking up.

  5. Craig H commented on Jul 7

    Employers have to give workers more pay so they can drive to work, but that comes at the expense of new hiring. The question then becomes: How much more productivity can employers squeeze out of current employees?

  6. Michael C. commented on Jul 7

    Seems like this report is on the bad side for the economy and inflation/rates.

    However, the market is bouncing slightly. Seems like the market is unwinding some of the overreaction from the ADP report.

    Can’t imagine this is good overall for the market. At this point of the cycle, we need verification that the economy can withstand all the past rate hikes and that they will be ending soon. Instead, with this data, it points to a weakening economy with wage inflation.

  7. JoshK commented on Jul 7

    Broader question: We’ve seen productivity increase without wage increases. Isn’t it possible that now that the slack is out of the labor market we are just seeing the productivity increases pushed into payrol? Maybe these aren’t really inflationary #’s. ?

  8. Michael C. commented on Jul 7

    Futures are turning red. Seems like the market is giving some focus on the slower growth idea. Nasdaq just can’t get out of the mud.

  9. Craig H commented on Jul 7

    This is shaping up to be an ugly day. Payroll numbers didn’t give the bulls everything they wanted because of the wage component. The construction component was negative. Oil is at a new high. AMD (no surprise) and MMM warned.

    Into the foxholes.

  10. Bob A commented on Jul 7

    Speaking of jobs and housing… WM laying off more people in loan processing.

  11. Craig commented on Jul 7

    Gee, Barry is somewhere hot with Margarita in hand, and he still nails the market.

    Maybe we all should have taken vacation?

    I’m with Craig H, under my desk and waiting for incoming….. and the inevitable wringing or hands and shuffling of feet waiting for the beige book notes.

    I think the slowing economy is finally starting to sink in….be careful out there.

  12. JoshK commented on Jul 7

    Cash is not off as much as futures yet, but they are down…

  13. KL2005 commented on Jul 7

    Until you reconcile the 4.6% unemployment rate with the NFP you are deluding yourself to only focus on the bad numbers. Luckily the FED is not so narrow minded. The FED recognizes there is full employment and the economy is growing to quickly.

    While you make some interesting posts you are obviously out of touch, after all the FED saw this comming 17 rate hikes ago and you still have not seen the whole picture.

  14. Craig commented on Jul 7

    Hmmm, that’s not the impression i get from the article.

    When you get past the Real estate agent’s initial rosey view, you see the increasing inventories at the bottom of the page. I think this illustrates the arrival of the top for Western Washington where I live.


    My daughter just leased an apartment in Tacoma. We looked for quite some time to find the right place, but in the process I found signs of my own personal indicator of the coming trouble in RE, which I saw in the 80’s when I bought my house.

    That indicator (and you can look for it where you live) is “lease to own” and “rent to own” offers with even more extravagent/exotic/stupid/mindless financing.

    The buyer they cite is running into this. She is buying in North King County where values are higher. Poor lady, she is trying to buy her first home in never-never land. The article also uses Bellevue, Kirkland, Redmond and Mercer Island environs as the example of “value”.

    No kidding, that’s where MS, Costco, Bill gates, Paul Allen and all of the uppercrust forms and lives.

    Here in the real Western Washington rents are on the way up, property values are stalled but high, and you know about interest rates. This has to shrink the pool of qualified buyers. Hence the inventories as provided in the article.

  15. Cherry commented on Jul 7

    The “NW bubble” is actually nothing more than a echo bubble that missed most of the 2001-05 fun.

  16. Cherry commented on Jul 7

    We are not at full employment. Population/employment ratio’s are a great guess how “fast” the economies running or has run.

    June 1996: 63.2%
    June 2000: 64.1%
    June 2006: 63.0%

    The point is, closer to 64% is full employment and 64% and over is far over it. As I have said before, the Bush unemployment rate is a joke. The model they use throw out people who should be counted “unemployed” yet don’t count them. Some blame the Clinton Admin. for this “change”, though caculating under the Clinton era model, unemployment came out to 5.5% in June. About around the 1996 levels where the E/P ratio now is just under. Wouldn’t take much to slow it down. Government actually begin getting the fiscal house in order, banks tightening up………..a massive speculatory bubble popping destroying liquidity……oh my!!!!!

  17. KL2005 commented on Jul 7


    If you are going to use NASDAQ bubble years for your evaluations you will be deluding your self (not me)

    Unemployment measures are never perfect, but the current methodology has been used since the Kennedy administration. Below 5.0% is full employment and we are at 4.6% The FED realizes the economy and employment is to HOT and is trying to slow things down.

    This has nothing to do with politics it is all controlled by the FED.

  18. JoshK commented on Jul 7

    Also, employment participation #’s are subject to a lot of debate. I wouldn’t worry why people drop out of the labor market. They may retire, have kids, go back to school, etc. I can’t imagne very many people just give up and say they are not going to look for a job.

  19. Cherry commented on Jul 7

    Disagree on all accounts. JoshK, I wasn’t talking about Participation rates, but population/employment ratio’s. They ARE a good indictator of the economy.

    KL, you don’t get it. This economy is NOT hot. This expansion is what would have happened if the “Nas” bubble had never happened, yet it has also been funded with major debt increases. Nor is the unemployment rate “caculated” by Kennedy era models anymore. That changed in the 2001. Hence, we are not at full employment. Matter of fact, according to my data, unemployment has peeked and will slowly begin moving up the rest of this year, exploding in 2007.

  20. JoshK commented on Jul 7


    Population / employment is similar. A big factor now is all of the women who have delayed having families and are now out of the labor force. Just as an example, my wife is a lawyer and all of her lawyer friends are now stay at home moms who will go back one day. Most of them delayed having kids until the last moment, so you are seeing there a shift of a population that is now willfully unemployed.

    But this has been depated ad nauseum. It’s pretty hard to argue against the standard unemployment #’s. Once you start to deconstruct that, then all bets are off. Why not challenge the population #’s then next. And that may not be a bad idea. I’m sure .25m people in the Bronx are not counted right there.

  21. Detroit Dan commented on Jul 7


    You present some anecdotal info to support the view that lower employment participation rates are due to voluntary choices. My wife stopped working because her job went away. She could find a job if she needed to, but the available jobs are not as good as they once were, in her case. So she dropped out of the labor force.

    So the lower participation rates are certainly a reflection of the strength of the economy. This examples proves it c-;

  22. The Big Picture commented on Jul 8

    NFP: Another in a long series of disappointments

    As we expected, yesterday’s NFP was another stinkeroo. The 121k number was significantly below the 200k consensus, and far, far away from some of the myopically optimistic upside outliers. Let’s delve beneath the surface a bit, first via Abelson:As Phi…

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