Once again, with a thud, a report on the state of jobs in America breaks our hearts and makes those dark clouds even darker. The ADP is in and it's just one of those things that make you shrug your shoulders with disbelief. The key is whether that disbelief is limited to policies that have us mired in this situation, or to our economic system, which continues to come under assault. Of course, it doesn't help when the person driving that system is wrecking it on purpose.
It's sort of like a used car salesman driving your car into a ditch, but telling you don't worry because he's got something better sitting on the lot anyway, and it's only been driven by a widow on Sundays.
The government number could be a lot different from ADP, but this isn't a report to dismiss out of hand. There were couple bright spots, but for the most part, the economy is still in search of a spark- I think it has to come from people looking for work and the administration calling off war on success. I know the new healthcare law will not be replaced, but even if there is a friendlier tone, that would help.
- Construction 14,000
- Manufacturing 10,000
- Trade 35,000
- Financial 6,000
- Professional services 46,000
By Jennifer Coombs, Research Analyst
Equity futures are expected to start the morning in the red. There was a lot of economic data already released this morning, but there is still more to come. Many things can happen between now and the end of the day to change how the equity futures perform. However, the ADP Employment reading should give the best temperature gauge for the jobs report this Friday.
The ADP Non-Farm Employment reading reported a change of 179,000 jobs added in May, which fell substantially below consensus' expectation of a 200,000 increase and a revised reading of 215,000 (from 220,000) in April. The goods-producing segment, or the major driver of industrial growth, added 29,000 jobs in May which was up from the 21,000 gained in April. However, service-providing employment rose by 150,000 jobs in May, but was much lower than the 194,000 jobs added in April. The report ultimately indicates that professional and business services contributed the most to the decline in the number of jobs added for the month, but there looks to be an expansion in trade, transportation and utilities.
The further decline in the equity markets this morning is, more likely than not, due to this slowdown in employment. For years the ADP employment data has served as a close proxy to the jobs data released by the Bureau of Labor Statistics (BLS). As you can see from the chart below, the two are very closely correlated - note that the chart includes the ADP reading for May, but the BLS figure will be released on Friday. The BLS data also notes the official national unemployment rate as well as breaking out the jobs data further by sector and job type - therefore a much better reading.
On the housing-front, the average 30-year mortgage rate declined 5 basis points to 4.26%. Mortgage applications continued to decrease, despite mortgage rates decreasing. Purchase applications declined 15% year-on-year, but only 4.0% week-on-week. People are also refraining from refinancing their homes, since it was reported that refinancing applications fell 3% week-on-week. A decline in refinancing applications may be a good sign indicating that people are continuing to make payments on their homes without extending the term of repayment. The purchasing of homes may pick up in the coming weeks as the weather continues to improve. The Mortgage Bankers Association (MBA) Index fell 3.1% for last week from a decline of 1.2% in the previous week. We believe that the continuous declines imply that there may be a factor other than weather (such as personal income levels) that is deterring home sales.