The Jobs Market Is Tighter Than ADP Thinks

The Federal Reserve is extremely concerned about the imbalance between supply and demand in the labor market. Despite the decline in payroll growth reported by APD on Wednesday and the decline in job openings reported out of the Labor Department on Tuesday, our central bankers are unlikely to find much consolation in this week’s data.

The ADP National Employment Report showed private sector payrolls rising by 145,000, missing expectations for around 200,000 jobs. The prior month’s estimate, which was already an upside surprise at 242,000, was revised up to 261,000. The January figure had already been revised up from the initial estimate of 106,000 to 119.000. This gives us a three-month average of 175,000 jobs in the first quarter.

“Our March payroll data is one of several signals that the economy is slowing,” said Nela Richardson, ADP’s chief economist. “Employers are pulling back from a year of strong hiring; and pay growth, after a three-month plateau, is inching down.”

With all due respect to Richardson, who is a superb economist whom we have had the pleasure of meeting several times over the years, that’s not how we read the data. Notably, the March total was still above the January total. There’s no clear downward trend in employment apparent. And even as a standalone figure, 145,000 private sector jobs is a very hot number and well above the 75,000 to 100,000 jobs economists estimate it would take to keep unemployment from rising.

Silicon Valley Bank Turmoil Dragged Down the Headline ADP Jobs Number

The turmoil in the banking sector in March also played a role in bringing down the jobs figure. Silicon Valley Bank, the sixteenth largest bank in the U.S. by assets, failed in March, and several other medium-sized regional banks were convulsed with nascent deposit runs. So, it is not surprising that financial sector employment fell in the month, with ADP recording a decline of 51,000. We think this should be looked at as not necessarily signaling a long-term or broad-based economic trend.

In fact, the March decline was not enough to erase even the prior month’s gain of 62,000 in financial services. The sector added 30,000 in January, so it is up a net 41,000 in the first quarter. That’s an average monthly increase of 13,667 thousand, a solid trend in employment gains.

A man speaks on a mobile telephone outside the Silicon Valley Bank headquarters in Santa Clara, California, on March 10, 2023. (NOAH BERGER/AFP via Getty Images)

The decline in professional and business services is arguably more serious. This sector shed 46,000 jobs in March after losing 36,000 in February and adding 30,000 in January. So, it is down 52,000 so far this year and averaging a loss of 17,333 each month. This is likely related to businesses cutting back on white-collar positions that were added in the immediate post-pandemic recovery period.

Despite all the headlines about layoffs in Silicon Valley and the broader tech sector, ADP measures a contraction of just 7,000 jobs in March. That’s not even enough to offset the 9,000 gain in February and the 5,000 gain in January. It puts the tech sector up a net 7,000 year-to-date, which is not what you might expect given the dire headlines about downsizing.

This likely is one reason these layoffs have not shown up much in jobless claims numbers: those who lost their jobs are finding plenty still available. We’re adding an average of 2,333 jobs per month in information, which is a healthy number for a part of the economy that makes up a tiny percentage of overall employment.

A construction worker carries lumber as he builds a new home on January 21, 2015, in Petaluma, CA. (Justin Sullivan/Getty Images)

Housing Recovery Pumps Up Jobs

Over the last few weeks, we’ve been pointing out that the housing sector recession appears to have bottomed, and the sector is seeing early stages of a recovery. Sales of existing homes are up, housing starts jumped in February, and home builder confidence has been rising for three months. Construction spending dipped in February, but this was more than made up for by an upward revision to January.

The ADP jobs report adds to the evidence for a housing sector recovery. After declines in construction employment in January and February, March saw an increase of 53,000 jobs, a very large number for the sector. In fact, we’re up a net 13,000 jobs in construction so far this year, according to ADP’s figures.

Leisure and Hospitality Boomed

Not to be overlooked was the boom in payrolls in leisure and hospitality. These skyrocketed by 98,000 jobs in March, ADP said. That followed an 83,000 increase reported for February and 95,000 in January. That’s a total of 276,000 jobs year-to-date and an average of 92,000 per month. Demand for workers in leisure and hospitality remains red hot.

That’s especially important because this sector responds very rapidly to changes in consumer spending. The fact that hiring has remained this robust indicates that bars, restaurants, and hotels are likely swamped with demand despite high and rising prices.

This is not the sort of report you would expect if the economy was teetering on the edge of a recession. Fed officials looking at ADP’s report will see no reason to pause interest rate hikes.