US ADP June Employment Change Preview: Positive but a long way to go

Private payrolls are forecast to add workers for the first time in four months as the nation ended the lockdowns that had paralyzed the economy since March but the amount of rehiring is widely disputed.

The clients of Automatic Data Processing, (ADP) the largest US payroll services company are predicted to have employed 3 million new workers in June after firing 2.76 million in May and 19.557 million in April.

ADP Payrolls

Non-farm payrolls to be released two days later are also projected to add 3 million jobs after unexpectedly rising by 2.509 million in May.

Labor Market

The destruction of the US labor market in the pandemic economic shutdown is a well-known story. Upwards of 47 million people have filed for unemployment benefits in the last 14 weeks. National payrolls shed 20.687 million positions in April and hired back 12.3% in May.  These number are by many factors the most egregious in history.

With the strict closures of March and April ended employers have begun to rehire but given the novelty of the situation and the continuing coronavirus cases in many parts of the country the speed of the return is much debated.  The estimate spread in the Reuters survey for the ADP June figure is usually wide from 1.25 million to 9 million.

Consumer confidence

One window into the labor markets is through consumer attitudes, employment being the most salient component of outlook.

The Michigan survey of consumer sentiment has recovered from its April low. The two month drop from February to April in each of the three indexes, sentiment, current conditions and expectations was the steepest in the 68 year series. 

The current conditions index rebounded the most (April 74.3, June 87.1) followed by overall sentiment (April 71.8, June 78.1) and then expectations (April ’70.1, June 72.3).  

Conference Board figures showed a sharper recovery. The consumer confidence index jumped to 98.1 in June from 85.9 in May, well ahead of the 91.6 forecast. The present situation index climbed to 86.2 from 68.4 and the expectations index rose to 106.0 from 97.6.

 Markets and conclusion

The recovery in consumer sentiment figures, though well below their pre-pandemic levels logically reflect a widespread though hardly encompassing return of employment.  With all of the country at least partially open and only limited renewed closures in a few states, the employment and sentiment picture can be expected to brighten as the summer lengthens.

Payrolls are the crux of the current economic problem.  The ADP figures are a reliable precursor to the nationwide non-farm numbers from the Labor Department on Thursday—moved up one day from Friday for the July 4^th holiday.

The increase of coronavirus cases in a number of states that have lifted restrictions has prompted a mild risk-aversion rally in the US dollar over the last two weeks.  A stronger than forecast ADP report will allay some of the economic fear behind the rising viral incidence.  

Equities would certainly benefit from any signs of an improving labor economy, but oddly enough the dollar might not.