It will be interesting to see if this morning's lower than
expected labor market reading will make investors recalibrate
their bullish bets on the economy. It may or may not be the start
of another 'Spring Swoon' for the U.S. economy, but it
nevertheless represents downside risks to expectations for
Friday's March non-farm payroll report from the Bureau of Labor
The March jobs tally from
Automatic Data Processing
) came in weaker than expected this morning - up +158K vs.
consensus of +192K. The February tally was revised higher by +39K
to 237K. This report is expected to serve as a preview of the
non-farm payroll report from the government's BLS coming out on
Friday. The consensus expectation is for 'headline' BLS gains of
+200K. The ADP report means that expectations for the Friday
number may need to come down.
The loss of momentum in the ADP report should be worrying,
with the swing in the construction sector particularly notable.
The construction sector didn't add any jobs in March after strong
gains in the preceding months. As a result, the goods producing
side of the economy, particularly for medium sized employers, had
a weaker showing than what we had become accustomed to in the
last few months.
Small businesses, with employers having less than 50
employees, added +74K jobs in March. Medium sized businesses
(less than 500 employees) added +37K jobs in March, roughly half
the pace of February. Large businesses (1000+ employees) added
+47K jobs in March. The goods producing sectors added +7K jobs in
March, substantially lower than the last few months, while the
services-providing sector's tally of +151K jobs in the month was
not substantially different from sector's recent pace.
The weaker looking ADP report will likely cause analysts to
bring down their estimates for Friday's BLS report. The consensus
expectation ahead of the BLS report was for 'headline' gains of
about +200K, which appears on the high side post-ADP. A more
reasonable level for Friday, post-ADP, should be around +150K,
since the government sector likely lost 5K to 10K jobs during the
The 'softish' ADP read after the 'weak' manufacturing ISM
report earlier this week may prompt some to start suspecting the
onset of another 'Spring Swoon'. Estimates for first quarter GDP
have been steadily moving above the +3% mark, with some analysts
looking towards a +4% read. But the first quarter strength may be
nothing more than just a reversal of the unusual weakness in the
preceding quarter and the impact of the tax hikes and the
sequester starting to show up in economic data finally. It is
perhaps premature to start fearing a fresh 'Spring Swoon', but
the fear is not entirely unfounded given our prior history.
Where does it leave the market, which is already in record
territory? More economic data in the coming in the coming weeks
will clarify the picture. But we have the earnings season to
guide us before that. This morning's negative earnings surprises
) and earlier reports from
) don't inspire much confidence on the earnings front, but this
is just a start. If companies can reassure on the earnings front
and economic data doesn't point towards a fresh 'Spring Swoon',
then the rally may have some life left in it, otherwise not.
ISM Services Index
is scheduled for release today at 10:00 AM EST, and is expected
to decrease to 55.8 in February after increasing to 56 in
February and decreasing to 55.2 in January.
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