Monthly jobs data

This morning Automatic Data Processing (ADP) announced private sector job creation for the month of May.  According to the payroll firm 55,000 jobs were added last month by U.S. businesses.  This compares to an economist expected jobs added of 75,000.  April’s previously reported job creation of 32,000 was revised upward to 65,000.

Separately, the Department of Labor reported that weekly initial jobless claims fell by 10,000 to 453,000.  The four week moving average increased by 1,750 to 459,000.

Analysis: I am certain that the financial markets will focus on the “missed” jobs number.  After all, job creation in the U.S. fell short of estimates by 26.7% (= 55K / 75K – 1).  However, that April’s job creation data was revised dramatically upward is much more important to me.  Why?

ADP processes a huge proportion of paychecks in the United States.  For these data it has very specific and up-to-the-moment information.  But its survey attempts to cover the entire landscape of the U.S. jobs market.  For the figures to have been revised so dramatically is an indication that smaller companies, those not served by ADP, are creating jobs right now.  ADP had to work an extra month to gather data outside of its direct purview in order to get a better picture of the U.S. jobs market.

Small businesses are usually the first to hire as recessions end, followed by big companies.  This is because big companies often have very lucrative jobs benefits beyond salaries.  So big companies are more reluctant to hire when they feel there is uncertainty.  Also, big companies often outsource jobs before they will permanently hire.  Small companies are less likely to outsource.  Thus, April’s big revision is very important.  It’s my opinion that May’s data will also be revised upward.

As an investor, if the market dips on news like this it is an excellent time to add more shares of businesses you prefer.

Importance grade: 8; while job creation remains important, right now the data are supporting the thesis I have been putting forth for a very long-time now: a slow emergence from recession.  Additionally, the economy is definitely adding jobs.  That is, no longer are the data well withing the range of a statistical error.  We can honestly say the U.S. economy is robust enough to hire (very expensive) labor capital.

Jason