Summary: ADP payrolls down 301,000 in January, contrasts with consensus expectation of gain; December increase revised down by 31,000; economists blame wave of omicron infections in survey week; general sense of a temporary setback; history suggests losses not reversed immediately; positions down across firms of all sizes, bias towards small firms; 90% of loss in services sector, led by leisure/hospitality sector.
The ADP National Employment Report is a monthly report which provides an estimate of US non-farm employment in the private sector. Since publishing of the report began in 2006, its employment figures have exhibited a high correlation with official non-farm payroll figures, although a large difference can arise in any individual month.
The latest ADP report indicated private sector employment decreased by 534,000 in January, in contrast with the 208,000 increase which had been generally expected. December’s increase was revised down by 31,000 to 776,000.
Economists laid the blame on the latest wave of omicron infections in the US, with 5 million people reported to have been infected in the survey week.
NAB currency strategist Rodrigo Catril said, “Overall, there is a general sense that this is a temporary setback which arguably could extend into February, making interpretation of the state of the US labour market a difficult task over the near term…” He noted recent history suggests “Covid job losses do not reverse immediately.”
US Treasury yields, with the exception of those at the ultra-long end, moved lower on the day. By the close of business, the 2-year Treasury bond yield had lost 2bps to 1.15%, the 10-year yield had shed 3bps to 1.77% while the 30-year yield finished 4bps higher at 2.16%.
In terms of US Fed policy, expectations for a higher federal funds rate over the next 12 months softened slightly. At the close of business, March contracts implied an effective federal funds rate of 0.215%, 14bps higher than the current spot rate while June contracts implied 0.65%. February 2023 futures contracts implied an effective federal funds rate of 1.335%, 125bps above the spot rate.
Employment numbers in net terms fell across businesses of all sizes, again with a bias towards small firms. Firms with less than 50 employees shed a net 144,000 positions, mid-sized firms (50-499 employees) lost 59,000 positions while large businesses (500 or more employees) accounted for 98,000 fewer employees.
Employment at service providers accounted for just over 90% of the total net decrease, or 274,000 positions. The “Leisure & Hospitality” sector was the largest single source of losses, with 154,000 fewer positions. The “Trade, Transportation & Utilities” sector was also a significant source, losing 62,000 positions. Total jobs among goods producers decreased by a net 27,000 positions.
Prior to the ADP report, the consensus estimate of the change in January’s non-farm employment figure was +178,000. ANZ economist John Bromhead said these latest figures, in conjunction with initial unemployment claims, “has resulted in a wave of downward revisions for Friday’s official nonfarm payrolls release, which is now widely expected to show a negative number.”
The non-farm payroll report will be released by the Bureau of Labor Statistics this coming Friday night (AEST), 4 February.