Is ADP Pointing Towards a Fresh 'Spring Swoon'? - Ahead of Wall Street
03 Abril 2013 - 6:53AM
Zacks
Wednesday, April 3,
2013
It will be interesting to see if this morning’s lower than expected
labor market reading will make investors recalibrate their bullish
bets on the economy. It may or may not be the start of another
'Spring Swoon' for the U.S. economy, but it nevertheless represents
downside risks to expectations for Friday’s March non-farm payroll
report from the Bureau of Labor Statistics (BLS).
The March jobs tally from Automatic Data
Processing (ADP) came
in weaker than expected this morning – up +158K vs. consensus of
+192K. The February tally was revised higher by +39K to 237K. This
report is expected to serve as a preview of the non-farm payroll
report from the government’s BLS coming out on Friday. The
consensus expectation is for ‘headline’ BLS gains of +200K. The ADP
report means that expectations for the Friday number may need to
come down.
The loss of momentum in the ADP report should be worrying, with the
swing in the construction sector particularly notable. The
construction sector didn’t add any jobs in March after strong gains
in the preceding months. As a result, the goods producing side of
the economy, particularly for medium sized employers, had a weaker
showing than what we had become accustomed to in the last few
months.
Small businesses, with employers
having less than 50 employees, added +74K jobs in March. Medium
sized businesses (less than 500 employees) added +37K jobs in
March, roughly half the pace of February. Large businesses (1000+
employees) added +47K jobs in March. The goods producing sectors
added +7K jobs in March, substantially lower than the last few
months, while the services-providing sector’s tally of +151K jobs
in the month was not substantially different from sector’s recent
pace.
The weaker looking ADP report will likely cause analysts to bring
down their estimates for Friday’s BLS report. The consensus
expectation ahead of the BLS report was for ‘headline’ gains of
about +200K, which appears on the high side post-ADP. A more
reasonable level for Friday, post-ADP, should be around +150K,
since the government sector likely lost 5K to 10K jobs during the
month.
The ‘softish’ ADP read after the
‘weak’ manufacturing ISM report earlier this week may prompt some
to start suspecting the onset of another ‘Spring Swoon’. Estimates
for first quarter GDP have been steadily moving above the +3% mark,
with some analysts looking towards a +4% read. But the first
quarter strength may be nothing more than just a reversal of the
unusual weakness in the preceding quarter and the impact of the tax
hikes and the sequester starting to show up in economic data
finally. It is perhaps premature to start fearing a fresh ‘Spring
Swoon’, but the fear is not entirely unfounded given our prior
history.
Where does it leave the market, which is already in record
territory? More economic data in the coming in the coming weeks
will clarify the picture. But we have the earnings season to guide
us before that. This morning’s negative earnings surprises from
ConAgra (CAG), Global Payments
(GPN) and earlier reports from
Oracle (ORCL)
and FedEx (FDX) don’t inspire much confidence on the earnings
front, but this is just a start. If companies can reassure on the
earnings front and economic data doesn’t point towards a fresh
‘Spring Swoon’, then the rally may have some life left in it,
otherwise not.
Sheraz Mian
Director of Research
AUTOMATIC DATA (ADP): Free Stock Analysis Report
CONAGRA FOODS (CAG): Free Stock Analysis Report
FEDEX CORP (FDX): Free Stock Analysis Report
GLOBAL PAYMENTS (GPN): Free Stock Analysis Report
ORACLE CORP (ORCL): Free Stock Analysis Report
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