US ADP May Employment Change Preview: Half as bad as April is still terrible but markets have moved on


  • Private payrolls expected to fall 9 million in May.
  • Markets unlikely to react this month after April’s 20 million loss.
  • Dollar continues to descend as pandemic risk-premium ebbs with focus on recovery.

The toll of the pandemic and the reaction in United States rises each week as unemployment mounts to levels surpassing the Depression yet markets have a seemingly unshakable focus on the incipient recovery.

Payrolls

Private payrolls administered by Automatic Data Processing (ADP) are expected to shed 9 million workers in May after dropping 20 million workers in April.

ADP employment change

FXStreet

Non-farm payrolls lost 20.5 million people in April and another 8 million are expected to be out of work in May. More than 21 million unemployed are collecting insurance and more than 40 million have filed for benefits in the last 10 weeks.

The economic and labor market disaster that has ensued since the US began shutting down its economy in mid-March as part of the effort to contain the coronavirus is a grim and well-known story.

The speed and intensity of the layoffs and the closure of much of the retail sector has plunged the economy into a contraction that is currently forecast by the Atlanta Fed to be -52.8% annualized from the first to the second quarter.

Closure statistics

In the month since the last ADP report on May 6 markets have absorbed the April NFP loss, a jump in the unemployment rate of 10.3%  to 14.7% in a single month, a 16.4% plummet in retail sales, an 11.2% drop industrial production and other record setting  declines in income, personal spending and durable goods orders.

May’s non-farm payroll numbers are expected to be better only in comparison, 8 million vs 20.5 million. The unemployment rate is forecast to rise to 19.6. Initial jobless claims are predicted to add another 1.8 million to those collecting benefits.

Market responses to the pandemic

Yet in all the labor market and economic agony the Dow has added 6% in the past month closing at 25,475.02 on Monday. The S&P and Nasdaq show comparable gains.  

The dollar has moved substantially lower against all the majors except the yen, the dollar Index is off 2%,  as the currency markets continue the reversal of the risk-aversion trade that reached its panic height in the last two weeks of March.  

Even the price for a barrel of West Texas Intermediate (WTI, Clc1) has improved 40% since the last ADP report regardless of the continuing low levels of projected demand.

Reuters

Only Treasury yields, with bond prices supported by the Fed’s continuing quantitative easing purchases have drifted down to the lower end of their two month post-Fed intervention range.

Reuters

Market reactions: ADP and NFP

The ADP payrolls and NFP figures on Friday for which they are the precursor, will not, for all their dramatic recounting of the disaster, be adding any new information.  Markets have been reading a hitherto unimagined economic collapse into their trading rates for two months.  The early initial claims figures and last month’s NFP report set a standard for surprise that is almost impossible to beat.

When markets trade on information and news the dynamic is between expectation and result, between the forecast and the actual number with the prediction priced into the market. The greater the discrepancy the more likely a market reaction.  Surprise mandates the response not the severity of the economic description.  

Given the events of the last two months and that the ADP and NFP numbers will show improvement despite the absolute nature the pain they portray, their economic information is retrograde.

Unless the ADP numbers are considerably better than expected, reinforcing the economic recovery scenario, they will  have marginal trading impact. Disaster is old news already.

 

 

 

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD hits fresh one-month low amid souring market mood

EUR/USD has been extending its falls and dips below 1.21 as US retail sales badly disappointed and the worsening mood is supporting the safe-haven dollar. Markets digest Biden's stimulus plan. US Consumer Sentiment declined to 59.2 points. 

EUR/USD News

GBP/USD retreats toward 1.36 amid fresh dollar strength

GBP/US has pared its gains and falls toward 1.36 as the dollar gains ground. The UK economy shrank by 2.6% in November, better than estimated. The UK is ramping up its vaccination campaign and PM Johnson is pressured to ease the lockdown. 

GBP/USD News

Gold extends sideways grind near $1,850

The XAU/USD pair registered small daily gains on Thursday but struggled to extend its recovery amid a lack of significant fundamental drivers on Friday. As of writing, the pair was up 0.15% on a daily basis at $1,849.

Gold news

Forex Today: Markets “sell the fact” on Biden's stimulus, dollar rises, retail sales eyed

Markets are on the back foot after Biden hinted about tax hikes while introducing stimulus. The safe-haven dollar is edging higher despite Powell's pledge to keep monetary policy accommodative. 

Read more

DXY breaks above key downtrend, eyes move above 91.00

USD has been strongly supported on what has shaped up to be a very much risk off final trading day of the week. Most G10/USD pairs have seen significant weakness, aside from CHF/USD and JPY/USD, given that the two currencies are also considered “safe havens”.

US Dollar Index News

Forex Majors

Cryptocurrencies

Signatures