There are several important reports on the U.S. economy worth mentioning this morning. First, private sector payrolls in America jumped by 275K in April, according to new ADP data. That was the biggest gain since July 2018 and the largest expectations beat in more than two years. As usual it is worth reiterating that this ADP data series historically has not been the best predictor of the more important nonfarm payrolls reports released each month by the Labor Department (due out tomorrow) and instead is better viewed as a confirmation of recent labor market trends.
To this end, April’s substantial ADP print supports March’s strong rebound in nonfarm payrolls growth, and provides more evidence that the economy continues to easily absorb new labor market entrants (job seekers). Recent wage gains likely contributed to April’s uptick in hiring, as more employers have turned to boosting worker compensation as a way to address skills mismatches and better attract talent in a tightening labor market. A growing number of small businesses have started to join in on this trend, and payrolls at companies with 1-49 workers rose by 77K in April, the largest increase since January. Hiring at these firms also accounted for 28 percent of all the private-sector payrolls added to the economy in April, another 3-month high. Going forward, though, competing for talent with larger firms (offering attractive wages and benefits) will likely remain a challenge. As for medium-sized businesses, this group has been accounting for a growing share of monthly private-sector job creation (53 percent in April), likely related to their lower exposure to global trade issues relative to giant multinational firms.
Next, 40,023 corporate layoffs were announced in America in April, according to Challenger, Gray & Christmas. That was a 34 percent decline from March and the lowest monthly print since last August. The report’s authors added that “The second quarter averages the fewest cuts of the year, according to our historical tracking. With the favorable jobs report from the Bureau of Labor Statistics in March, this could signify companies are slowing down plans to cut workers for the spring and summer months.” Layoffs are still occurring, though, and the retail sector continues to drive separations. This is due largely to restructuring, bankruptcy, and plans to shutter 4,397 stores, according to the report, as many brick & mortars struggle to compete with online merchants (Amazon). The manufacturing and automotive sectors have also seen an uptick in layoff announcements recently, as these arenas now face additional challenges from anemic economic growth overseas and continued tariff uncertainty.
Elsewhere, nonfarm business sector labor productivity jumped by 3.6 percent during the first quarter of 2019, according to a report from the Bureau of Labor Statistics. That was significantly better than expected and year-over-year growth rose at the fastest pace in nearly a decade. At the same time, unit labor costs fell by 0.9 percent in Q1 even as worker compensation rose by 2.6 percent. This highlights how productivity gains can allow wages to increase while still keeping inflation in check. Moreover, an alternative to raising selling prices when labor costs increase is to instead keep prices low to try to gain market share. This can be more easily achieved by boosting the productivity (output per hour) of the existing workforce through investments in equipment, technology, and employee training. The recent tax cuts helped many U.S. companies move forward the timetables for such capital spending initiatives, and a continued rise in labor costs will only increase the importance of additional investments in productivity.
Sources: Econoday, ADP, Challenger, Gray & Christmas, Twitter, FRBSL
Post author: Charles Couch