ADP Employment Report

ADP, also known as Automatic Data Processing, is "one of the world's largest providers of business outsourcing solutions. Leveraging over 60 years of experience, ADP offers a wide range of HR, payroll, tax and benefit administration solutions from a single source."[1] These services give them vast insight into national employment, and changes in national employment.

Much like Challenger, Gray, & Christmas, they collate this information into a monthly snapshot of the US employment situation. ADP focuses entirely on the private sector, however, because that's what they work with.

In February, they reported a seasonally adjusted employment increase of 217,000 jobs. Looking at the March report, we see two things right away: First of all, private-sector non-farm employment increased by 201,000 in March on a seasonally adjusted basis. Secondly, February's job growth was revised downwards to 208,000.

164,000 (75.57%) of those new jobs came from the service-providing sector and 37,000 (18.4%) came from the goods-producing sector. Large businesses were responsible for 17,000 (8.45%) of the new jobs, medium-size businesses for 82,000 (40.8%), and small businesses for 102,000 (50.7%).

[1] From ADP's web site.

Jobs And Mortgages

That's what's going to be driving the futures around this morning, at least as far as economic data is concerned. Jobs and mortgages.

So let's start off with the mortgages. The Mortgage Bankers Association has released it's Weekly Mortgage Applications Survey, which has a name that is reasonably self-explanatory. The current release is for the week ending 1/28, and has the Market Composite Index up 11.3% on a seasonally adjusted basis. The Refinance Index (again, self-explanatory) was up 11.7%, while the Purchase Index (which looks at brand new mortgage applications) was up 9.5%. Refinancing represented 69.3% of the total applications filed for the week, and the average 30-year fixed-rate mortgage was 4.81%.

And now, jobs. First, we have the Challenger Job-Cut Report, issued by Challenger, Gray & Christmas[1], which tracks layoffs by region and industry. the February report indicates that employers announced plans to cut 38,519 jobs in January. This is an increase from December's 32,004 layoffs, but it is also the lowest January total on record - the average layoffs in January are 104,560. Drilling in, we see that:

• The government and non-profit sector led the charge, with 6450 planned reductions in staff (up substantially from December's 3276 job cuts). Furthermore, there are no indications that there will be a turnaround in the trend in 2011.
• The retail sector was second with an announcement to cut 5755 jobs. this is also up from December's 4937, but significantly down from January 2010 (16,737 layoffs). Challenger, Gray & Christmas see this as a sign of a rebound in the retail sector.
• California had the most layoffs (4848), followed by Illinois (4078), North Carolina (3465), Michigan (2604) and Iowa 92216).

Moving on to a report that gets a little more attention, ADP has also released its January 2011 National Employment Report. First off, they revised the December employment figures downward from an increase of 297,000 to an increase of only 247,000. January saw an employment increase of only 217,000. That looks weak, but it substantially beats the average employment gain over the last six months (which was only 52,000 per month). Drilling in to the report:

• Employment in the service sector rose by 166,000 (the twelfth consecutive month of gains for the sector), while the employment in the goods-producing sector rose 21,000 (the third month of consecutive gains) and employment in the manufacturing sector rose 19,000 (also the third consecutive month of gains).
• Construction employment fell 1000. Financial services employment gained 3000.
• Large business employment increased by 11,000. Medium-size business employment increased 79,000. Small-size business employment increased 97,000.

None of these are going to shove the market around too much on their own, but the aggregate effect of both the mortgage gains and the improvement in the employment situation should help boost the futures. Also, it seems to point towards good results for tomorrow's First Time Jobless Claims, and Friday's Employment Situation Report.

[1] Who, now? According to their website, Challenger, Gray & Christmas are "the nation's first, oldest, and premier outplacement organization". And what is an outplacement organization? A company that assists "downsizing" companies[2] in helping former employees through the transition to new jobs. So it could be argued that they have their finger on the pulse of the layoff rate in the US.

[2] That is, companies laying people off.

ADP: Employment Is Good. (Also, Other Metrics)

Starting in Europe, the European Union reported its November PPI around 5 AM EST today. October saw a 0.4% increase (for a 4.4% increase year over year), and the consensus expectation was for an additional 0.1% increase (keeping the year over year figures flat). The EU actually came in at a 0.3% increase, bringing the year over year PPI to 4.5%. Not great, but not terribly bad.

Hopping across the Arctic to Our Neighbors to the North, Canada has released its Industrial Product Price Index (IPPI). Which has missed expectations. For November, analysts were expecting to see a 0.3% increase, and they actually had a 0.5% increase. Oddly, however, their year over year IPPI has declined 20 bps to 2.1%, so investors probably won't take this all that badly.

Here in the states, the Mortgage Bankers Association released its Weekly Mortgage Applications Survey figures for the week ending 12/31. The Market Composite Index (which measures margin loan application volume) was up 2.3% for the week, while the Refinance Index (which tracks refinancing volume) was up 3.9% and the Purchase Index (which tracks volume for first-time mortgages) was down 0.8%. Refinancing made up 71.0% or all mortgage activity for the week, and the average contract interest rate for 30-year fixed-rate mortgages fell to 4.82%.

The implication is that we're starting to find ourselves in a more favorable interest rate environment and that banks are more willing to refinance, but that that we may be expecting home sales to remain soft. Still, while interesting, this report isn't a huge deal for the markets.

ADP has released its monthly National Employment Report for December, and the word is, well, surprisingly good. November saw 92,000 new nonfarm private sector jobs (revised downwards from the original release of 93,000, but we can live with that[1]) . The Street doesn't make predictions for this one, so I'll just go ahead and tell you that ADP sees nonfarm private-sector employment increasing by 297,000 in December. Here's the breakdown:

• Service sector jobs increased by 270,000[2], the single largest monthly increase in the history of the report. Financial services, a subset of this sector, shed 8000 jobs.
• Goods-producing sector jobs rose 27,000. As a subset of this, manufacturing sector jobs increased 23,000 and construction sector jobs remained unchanged (meaning they didn't drop for the first time since June 2007)
• The greatest gains came from medium businesses, which hired 144,000 new employees. Small businesses hired 117,000, and large businesses hired 36,000.

At 10 AM EST we're looking for the Institute for Supply Management's Non-Manufacturing Index. This tracks the health of all of the various sectors of the US economy that aren't factories - agriculture[3], mining, construction, retail trade, whatever. Just so long as it doesn't come from a factory. Anything over 50% is considered a growing economy. November had a 55%, and we're looking for a 56% for December.

Then at 10:30 EST, we get the Energy Information Administration's weekly figures on petroleum inventories. This has an inverse impact on oil prices in the US - if supplies are increasing, prices tend to fall (and vice-versa). It's not a huge market mover, but commodities traders and people who invest in oil stocks tend to like it.

[1] Unless you're one of the 1000 people revised downwards, anyway.

[2] No word on how many of these are seasonal jobs, though, so this could be a fluke driven by the Holiday shopping season. I'm not saying it is, since I don't know. I'm just saying that January's employment situation report could be a letdown in the face of this explosive growth.

[3] Yeah, yeah, factory farming. Doesn't count.

The First Half Of The Measures

We kick off the market measures today with the ADP Employment Report and Productivity and Costs.

Automatic Data Processing, Inc. is, according to their web site, "one of the world's largest providers of business outsourcing solutions." They provide "...HR, payroll, tax and benefits administration solutions." This puts them in a good place to examine the employment situation, because they're providing payroll services to some 550,000 clients. Their report doesn't carry the same weight as the BLS Employment Situation report, but it still provides a good look at what nonfarm private sector employment looks like.

Their report can be read at http://www.adpemploymentreport.com/, which shows that private sector employment rose by 93,000 in November. That's up from a (revised) 82,000 increase in October, and represents the 10th consecutive month of gains (with an average of 47,000 new jobs per month). They do not, however, expect this to be enough gains to lower the unemployment rate. Their prediction is that unemployment will remain above 9% through 2011. 79,000 of the new jobs came from the service sector and 14,000 came from the goods-producing sector. Small businesses saw an increase of 54,000 jobs, medium-size businesses saw an increase of 37,000, and large businesses saw a 2000 increase.

Moving on to productivity and costs, this measures the Q/Q change in nonfarm productivity and in unit labor costs. The information is compiled by the Bureau of Labor Statistics, and the Street likes it because they like seeing the companies they invest in maximizing production while minimizing costs (because that means maximizing profits). This month, we get the Q3 2010 revised estimates.

The initial data (released in September) indicated that nonfarm productivity had increased by 1.9% and unit labor costs were down 0.1%. Looking to the final revision, analysts were looking to see a nonfarm productivity revised to up 2.0% and unit labor costs revised to a net change of 0.0%.

The report is available at http://www.bls.gov/news.release/pdf/prod2.pdf. Nonfarm productivity was revised to a 2.3% increase, with unit labor costs down 0.1%. Not too shabby. Pretty much in line with expectations.

See you in about half an hour or so with the ISM Manufacturing Index and Constructions Spending.