ADP Payrolls 102K, Trade Deficit Worsens: Countdown to Rate Cut?

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Wednesday, July 3, 2019

In the pre-market hours of today’s holiday-shortened market session ahead of tomorrow’s Independence Day market holiday, we see some key data on the U.S. labor market. Automatic Data Processing’s ADP monthly private-sector jobs survey, Initial Jobless Claims and Continuing Claims have all been released.

ADP for June posted its second disappointing headline in as many months: 102K was beneath the 143K consensus expectation. This follows the upwardly revised May total of 41K new private-sector jobs. Averaging in a stronger-than-expected April number, we now see a 3-month moving average (subject to change upon further revisions) of 138K per month – consistent with flat labor market growth, but no longer adding jobs at a much higher clip than retirees are stepping down from them.

Education & Healthcare gained 55K new jobs last month, consistent with its long-term leadership by industry in domestic labor. Leisure & Hospitality, going through a bit of volatility in recent months, brought in just 3K new jobs. Financial and Manufacturing also registered 4-digit gains at 7K each. Meanwhile, Construction lost 18K jobs in June, suggesting a bit of saturation in the building market.

Moody’s Chief Economist Mark Zandi, speaking today on CNBC’s “Squawk Box,” believes a weaker jobs number this Friday – when the U.S. Bureau of Labor Statistics (BLS) reports non-farm payrolls – would “seal it for a rate cut from the Fed” in its meeting at the end of this month. Last month’s BLS figure was originally reported at just 75K new jobs, well off the pace of previous months.

Initial Jobless Claims dipped back down into its long-term range to 221K, after an upwardly revised 229K stepped out of that range a week ago. Continuing Claims also fell, from an already historically low 1.694 million previously to 1.686 million in its latest read. So the week-to-week labor market numbers look pretty steady.

The Trade Deficit for May was worse than expected: -$55.5 billion in domestic trade balance, beneath the -$54.4 billion anticipated. April’s originally reported -$50.8 billion was revised down to -$51.2 billion on the revision; thus, the U.S. trade situation has grown incrementally worse over the past two months.

All this leads us to look toward a countdown to an interest rate cut – likely by a quarter-percent – during the final days of July. Currently, the nominal rate is 2.25-2.50%: historically still quite low, but a growing consensus is that making the dollar cheaper will stave off fears of a coming economic recession. It would also help boost small businesses (which are performing worst in latest jobs surveys) hire more workers, thereby improving monthly employment numbers – at least in the short term.

Mark Vickery

Senior Editor

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