July 31, 2019

As shown above the ADP survey shows an impressive correlation with the private sector portion of the payroll employment data to be released a couple of days later.  And well it should.  ADP, or Automatic Data Processing, Inc. is a provider of payroll-related services. Currently, ADP processes over 500,000 payrolls, for approximately 430,000 separate business entities, covering over 23 million employees.  The survey has been in existence since January 2001, and its average error has been 65 thousand.  So while it is not perfect, it does have a respectable track record.

The ADP survey said that employment rose 156 thousand in July after having climbed 112 thousand in June.  In the most recent 3-month period ADP employment has risen 104 thousand.   On Friday we expect the BLS to report that private sector employment rose  about 170 thousand in July.  But keep in mind that the labor force is rising by only about 100 thousand per month.  So while the employment gains are slowing the pace of employment continues to outpace growth in the labor force which means that the unemployment rate will continue to decline slowly.  While  the monthly job gains have gotten somewhat smaller it is largely because workers are so hard to find — not because the economy is weakening.

Jobs in goods-producing industries  rose 9 thousand in July after declining 11 thousand in June   —  construction employment rose 15 thousand, mining fell by 6 thousand,  and manufacturing rose 1 thousand.   Service providers boosted payrolls by 146 thousand in July after having risen 113 thousand in June.  The July increase was led by an increase of 20 thousand in professional services,  35 thousand in health care,  18 thousand in administration and support, an increase of 2 thousand in education, an increase of 26 thousand jobs in leisure and hospitality, an increase of 27 thousand in trade, transportation, and utility workers, and an 11 thousand increase in financial services.

With the labor force rising very slowly by about 100 thousand per month and employment gains of 170 thousand, the unemployment rate will continue to decline slowly.  The unemployment rate currently is 3.7% at a 50-year low and well below the full employment threshold.  As a result we are beginning to see more and more shortages of available workers.  However, at this point most of the upward pressure on wages is being countered by a corresponding increase in productivity.   Over the past year unit labor costs, or labor costs adjusted for the increase in productivity fell 0.8%.  Despite the seemingly tight labor market there is no upward pressure on the inflation rate.

The stock market has rebounded, set a new record high level.   Interest rates will remain steady or even decline through the end of the year.  Consumers remain confident.  Corporate earnings are solid.  The economy is still receiving some stimulus in the form of both individual and corporate income taxes.  Thus, our conclusion is that the economy will expand by  2.7% in 2019 after having risen 3.0% last year.

Stephen Slifer


Charleston, SC