There were lots of important reports on the U.S. economy released this morning. First, data from ADP showed that business hiring slowed considerably in America last month, as 158K private-sector payrolls were added to the economy in June. That was much worse than the 180K increase economists had expected and May’s figure was revised slightly lower. As a result, the less volatile 3-month average for ADP’s hiring estimate plunged to +179K, the weakest reading since December but still an overall healthy pace of job creation. Under the hood, all of the private-sector payrolls added last month were found in the services sector (+158K), including large gains in the “professional & business” and “trade, transportation & utilities” arenas. Payrolls in the goods-producing sector were flat in June, as mining and construction layoffs offset manufacturing gains. As for small businesses, firms with 1-49 employees added just 17K payrolls in June, the smallest monthly gain since prior to the election. Altogether this was a disappointing report but Mark Zandi, chief economist of Moody’s Analytics, stressed that “The job market continues to power forward. Abstracting from the monthly ups and downs, job growth remains a stalwart between 150,000 and 200,000. At this pace, which is double the rate of labor force growth, the tight labor market will continue getting tighter.”
Next, a report from Challenger, Gray & Christmas showed that 31,105 corporate layoffs were announced in America last month. That is a 6 percent decline from May and 19 percent lower compared to this same period last year. Through the first six months of 2017, employers announced 227,000 planned job cuts, down 28 percent from the first half of 2016. John A. Challenger, chief executive officer of Challenger, Gray & Christmas, attributed the relatively modest pace of layoff announcements to the tight labor market, and added that “companies are also waiting to see how proposed regulations from the Trump administration may impact business going forward.” There are still job cuts occurring, though, and the retail sector is leading the way with 60,127 announced layoffs so far in 2017. That is up 42 percent compared to the first half of 2016 and the highest H1 total since 2009. The continued weakness in the retail space is due largely to the rising number of brick-and-mortar shops that are closing in response to increased competition from online merchants (Amazon).
Elsewhere, the purchasing managers' index (PMI) from IHS Markit for the U.S. services sector, which accounts for a much larger share of the overall economy than manufacturing, ended June at 54.2. That was the third monthly improvement in a row, better than economists had anticipated, and the highest headline reading since January. Under the hood, the pace of new orders growth rose to a 5-month high, which surveyed managers attributed to stronger demand from new and existing clients. One clear negative in the report was input prices climbing at the fastest rate in two years. Many respondents cited higher raw material and staffing costs as the driver of recent input price inflation. Similarly, the Institute for Supply Management’s (ISM’s) non-manufacturing index, also released this morning, rose to 57.4 in June, better than expected. Measures of production and new orders improved last month, and comments from surveyed managers were generally positive.
Sources: Econoday, Bloomberg, ZH, Twitter, ADP, Challenger, Gray & Christmas, U.S. DoL, IHS Markit, ISM, FRBSLPost author: Charles Couch