There were lots of important reports on the U.S. economy released this morning. First, data from ADP showed that business hiring slowed in April, with only 156K private-sector payrolls being added to the economy last month. This is much worse than the 193K increase economists had expected and the smallest monthly job gain in three years. The smoother 3-month average of ADP’s hiring estimates still sits at a healthy 186K but the pace of job creation definitely appears to have slowed recently. Elsewhere in the report, small businesses were again a major driver of private-sector job growth in America as firms with 1-49 employees added another 93K workers in April, unchanged from March’s upward-revised reading and therefore matching the best sequential gain seen since December. Essentially all the private-sector jobs added in April were in the services sector (166K), which included large gains in the "professional and business" and “transportation and utilities” arenas. There were 14K construction payrolls added last month but 13K jobs lost in the manufacturing sector. Overall this was a disappointing data-release but it is worth mentioning that a bad ADP print does not guarantee a similarly weak job report from the Bureau of Labor Statistics (BLS) this Friday. Mark Zandi, chief economist of Moody’s Analytics, added that “One month does not make a trend, but this bears close watching as the financial market turmoil earlier in the year may have done some damage to business hiring.”
Next, the services sector purchasing managers' index (PMI) from Markit Economics lifted to 52.8 in April, the best reading since January and a larger gain than economists had expected. New business growth firmed but input cost inflation picked up and hiring slid to a year-to-date low. Most surveyed managers attributed the recent rebound in business activity to “gradually improving client demand,” but many respondents said that uncertainty about the economic outlook is still weighing on growth. Markit's chief economist Chris Williamson added that “The PMI surveys show the economy continuing to pick itself up after the stagnation seen in February, with growth accelerating for a second successive month in April. However, the rate of expansion remains tepid, reliant on sluggish growth in services as manufacturers report a stalling of production.” Similarly, the Institute for Supply Management’s (ISM’s) non-manufacturing index, also released this morning, lifted to 55.7 in April, much better than expected and the 75th consecutive month of activity expansion (>50 reading) in this sector. Measures of new orders and employment both improved in April but production and exports deteriorated. Comments from surveyed managers can be found here.
Elsewhere, data from the Bureau of Labor Statistics (BLS) showed that nonfarm business sector labor productivity (employee output per hour) decreased at an annual rate of 1.0 percent during the first quarter of 2016. This is an “improvement” compared to the 1.7 percent loss seen in Q4 2015, and a slightly smaller decline than economists had expected. Output expanded by 0.4 percent in the first quarter and hours worked increased by 1.5 percent. The decline in productivity combined with a 3.0 percent rise in hourly compensation helped cause unit labor costs to jump by 4.1 percent last quarter. Overall this was a lackluster report and the Q1 decline in productivity was not too surprising since hiring remained robust in the first quarter even as overall economic growth slowed. However, the long-term weakness in productivity growth remains a clear negative for the economy and even Federal Reserve Chair Janet Yellen earlier last year described productivity growth as the “most important factor determining continued advances in living standards.”
Sources: Econoday, Twitter, DShort, Bloomberg, ZH, Markit Economics, ISM, ADP, BLS, FRBSLPost author: Charles Couch