NFP leading indicators: Mixed signals from ADP Employment and ISM Non-Manufacturing PMI
|Two of the most anticipated US jobs report leading indicators came out pointing into two completely different directions. The US ADP Employment Report estimated a dismal increase of just 27k jobs in May, which was way below 180k expectations and it actually is the worst mark in this indicator in more than nine years. A bit later, the Employment Index of the ISM Non-Manufacturing PMI survey showed a big rise, spiking 4.4 percentage points up to 58.1%, the best mark in the last six months.
The ADP Employment Change number is a highly correlated figure to the Non-Farm Payrolls, which might indicate that Friday's NFP number might rise well below the 195k average pace seen in the current positive employment trend, which would be a big disappointment. According to our NFP guide, "investors often consider the ADP report as the harbinger of the BLS release on payroll jobs, the NFP, because of the existent correlation between the two". This is an odd signal, not only because it's the only negative one up-to-date (Jobless Claims and Challenger Job Cuts are set to be released tomorrow), but also because of its negative potency. ADP Employment report hadn't come with such a negative figure since March 2010.
On the other hand, the Employment Index of the ISM Non-Manufacturing PMI survey provides a more specific signal on the status of the services labor market, which seems to be performing very well. After dipping down to 53.7% in April, the employment sub-component of the business survey in the non-manufacturing sector has risen strongly up to 58.1%, the best mark since last November. Our NFP crash course mentions that "you should consider the employment component of Non-Manufacturing more important than the Manufacturing, simply because services sectors amount to 70% of US employees".
These two figures are the sixth and seventh indicators released ahead of Friday's April US jobs report. Before these two mixed signals, the leading indicators couldn't paint a greener picture, with both Consumer Confidence indicators, the Manufacturing PMI Employment Index, the Job Openings report and the previous NFP release all showing positive figures. The big picture still looks quite promising, even though the ADP Employment report is throwing some significant red shade into this greeny outlook.
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