ADP Employment Disappoints, But Small Businesses Notch Jobs Gain

Economic Report Monitor #57
August 5th, 2020

The first of the jobs numbers came out today for July as the ADP Employment Report was released before the market opened. The number largely disappointed with an increase of 167,000 in private payrolls, well below the June reading of 4.314 million and the expected number for July of 1.5 million. Based on the report, it seems that the resurgence of cases has influenced reopening processes to slow and in some cases stop completely.

Larger companies lead the gains adding 129,000 jobs in July with medium businesses shedding -25,000 and small businesses adding 63,000. Small businesses probably only outperformed medium businesses because reopening processes are likely favoring operations with small numbers of employees working at a time. Businesses with only 1-19 employees, typically the most economically sensitive, added 45,000 jobs, the second-most behind businesses with 1,000+ at 111,000.

The sectors that added the most jobs were in the service sector which added 166,000 overall. The strongest industry was professional and business services, up 58,000, proving to be resilient because of the ability to operate remotely. Industries that saw the most pain in March and April, trade/transportation and leisure/hospitality, saw gains from reopening up 41,000 and 38,000 respectively. Healthcare/social assistance continued to grow at 40,000 new jobs as demand remains high in the midst of a pandemic.

Goods-producing firms struggled in July, only adding 1,000 jobs. Manufacturing added 10,000 but was offset by a -8,000 drop in construction and a -1,000 drop in natural resources/mining. This reflects several manufacturing PMIs from the Fed, the ISM, and IHS Markit which have shown flat or slightly contracting employment. However, many of those same reports point to rising new orders and production which should have lead to rising capacity and rising employment. That hasn't been the case so far. One possible explanation is that manufacturing firms are trying to cut costs in labor by overloading currently employed workers with higher capacity levels.

Despite the disappointment in the jobs report, stocks rose on the day. The DJIA finished up 1.39% with the S&P 500 and the Nasdaq behind at 0.64% and 0.52%. It might be possible that the sluggishness in the labor market recovery as shown by the July ADP report will make lawmakers more urgent to pass the new stimulus aid for coronavirus-relief. In support of that explanation, gold continued to rise, up about 1.5%, and the dollar fell by about -0.40% on the day. The movements today contribute further to the argument that financial markets are increasingly deviating from the fundamental state of the economy as communicated by macroeconomic reports.

Other Reports:
  • MBA Mortgage Applications fell -5.1%, dragged lower by a -6.8% drop in the Refinancing index as rates stabilized and further stimulus suggested rates could return to lows.
  • IHS Markit Services PMI index was up to 50.0 in July signaling a flat economy. New orders contracted at a marginal rate. Service firms recorded the first increase in employment since February.
  • ISM Services PMI index came in at 58.1 in July, up from 57.1 in June. New orders and production expanded faster at 67.7 and 67.2. Employment contracted faster at 42.1.
  • Crude oil stockpiles fell -7.4 million barrels on reduced production at 11.0 million b/d. Refinery inputs are still -3.14 million b/d below last year. Crude oil spiked midday but is back to about flat.


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