Economists Lower Job Estimates Following Disappointing ADP Report

If you haven’t already heard about today’s jobs numbers from ADP, well, to paraphrase Bette Davis, “Fasten your seatbelts, it’s going to be a bumpy ride.”

The employment report from the nation’s largest payroll processor says 38,000 private sector jobs were added in May. That’s a huge drop from the slightly revised figure of 177,000 new jobs ADP reported for April.

Released before the U.S. stock markets opened this morning, the report sent tremors through the finance community, which promptly began a selloff that had the Dow Jones down 220 points with only an hour left before the 4 p.m. Eastern time close.

Economists were expecting ADP to report the May jobs increase to be in the range of 190,000 jobs, so the smaller number was a big disappointment. It prompted a flurry of “uh-oh” reports from business writers, while analysts reexamined their predictions of what Friday’s official employment report from the U.S. Department of Labor will show.

Goldman Sachs revised its initial estimate of 150,000 total new jobs to 100,000, while other firms were more pessimistic, cutting their estimates to as few as 75,000.  A Bloomberg survey before today’s ADP numbers were released, pegged the official jobs numbers at 180,000, which already was a reduction from the Labor Department’s April count of 244,000. Chances are that a new survey will now see that estimate drop.

Because of what they count and how, the ADP job counts routinely differ from the Labor Department report. So the ADP report is viewed as a harbinger, rather than as an absolute number. However, with the number so far off from expectations, and following on the heels of a manufacturing report that also came in below predictions, the market was primed for a pullback.

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The Institute for Supply Management reported the manufacturing purchasing managers’ index fell to 53.5 in May from 60.4 in April. The ISM attributed the decline to lower growth in new orders and production.

Meanwhile, The Conference Board Tuesday released its monthly Consumer Confidence Index, which declined by 5.2 points from April’s 66.0 reading. Now at 60.8, the Index is below May 2010, when it was at 63.3.

In issuing the May numbers, ADP said, “A deceleration in employment, while disappointing, is not entirely surprising. In the first quarter, GDP grew at only a 1.8% rate and only about 2¼% over the last four quarters. This is below most economists estimate of the economy’s potential growth rate and normally would be associated with very weak growth of employment.”

The report said the nation’s largest employers lost 19,000 jobs. All the gain — some 57,000 jobs — came from employers with fewer than 500 workers. Overall, manufacturing lost 9,000 jobs after seven consecutive months of gains. ADP also reported that construction lost 8,000 jobs, erasing all of April’s gains. Since peaking in January 2007, ADP says 2.1 million construction jobs have been lost.

John Zappe is the editor of and a contributing editor of John was a newspaper reporter and editor until his geek gene lead him to launch his first website in 1994. He developed and managed online newspaper employment sites and sold advertising services to recruiters and employers. Before joining ERE Media in 2006, John was a senior consultant and analyst with Advanced Interactive Media and previously was Vice President of Digital Media for the Los Angeles Newspaper Group.

Besides writing for ERE, John consults with staffing firms and employment agencies, providing content and managing their social media programs. He also works with organizations and businesses to assist with audience development and marketing. In his spare time  he can be found hiking in the California mountains or competing in canine agility and obedience competitions.

You can contact him here.


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