Economists expect the Labor Department to report a healthy rebound in job growth Friday despite the disappointing gains tallied by a private company. Payroll processor ADP said Thursday the private sector added 158,000 jobs in June, below the median 183,000 estimate of economists surveyed by Bloomberg. Economists reckon Labor will count a solid 177,000 rise in employment in the public and private sectors.
ADP generally captures the same broad trends as Labor but has not been a reliable predictor of that closely watched survey recently. In May, for example, ADP recorded 253,000 private-sector job gains while Labor tallied just 147,000 and 138,000 total additions, including government positions.
Economist Ian Shepherdson of Pantheon Macroeconomics blames the disparity between the two reports on seasonal adjustment challenges the government traditionally faces in May, a dilemma that didn’t taint ADP’s totals. He suggests the opposite dynamic was likely at play in June: ADP partly bases its estimate on the prior month’s total from Labor, suppressing its June figure. Labor, meanwhile, is likely to show a strong rebound that offsets the measurement problems that crimped the May gains, Shepherdson and other economists said.
“Don’t be deceived” by the ADP survey,” Shepherson wrote in a note to clients. “Official payrolls likely will be better.”
Other labor market barometers have been encouraging. Reports out Thursday revealed that initial jobless claims, a gauge of layoffs, picked up last week but still hover near 40-year lows. And a measure of service-sector activity jumped in June, according to the Institute for Supply Management. Earlier this week, ISM said manufacturing activity hit a three-year high last month.
Bad weather as well as the measurement issue spelled average monthly payroll gains of just 121,000 from March through May and 162,000 so far this year, down from 180,000 in 2016, according to Labor’s figures.
While that could lead to an offsetting bounce back in the short term, economists expect employment growth to slow this year to about 170,000 a month as the 4.3% unemployment rate, a 16-year low, provides employers a smaller pool of available workers. That, however, should spur faster wage increases. As little as 100,000 new jobs a month is enough to continue lowering unemployment, economists say.
In June, ADP said, small businesses added 17,000 jobs; midsize ones, 91,000; and large companies, 50,000.
Professional and business services led the gains with 69,000. Trade, transportation and utilities added 30,000; and education and health care, 28,000. Manufacturers added 6,000 jobs and construction cut 2,000.
“Despite a slight moderation in the month of June, the labor market remains strong,” said Ahu Yildirmaz, vice president of the ADP Research Institute.
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