Analysts at TD Securities suggest that Wednesday’s surprise 27k ADP Employment report was enough of a miss, nearly 160k below consensus to convince them to reduce their forecast for Friday’s nonfarm payroll release to 140k for May, from their earlier estimate of 190k.
Key Quotes
“This soft but not concerning print follows an eye-popping 263k print in the previous month. As such, we would view a number in this mid-100k range as an overdue correction to an unsustainable run rate for payroll growth, rather than the leading edge of a sharp slowdown in economic activity “” although we recognize markets will take little comfort in the event.”
“In particular for the May jobs print, we now expect job creation in the goods sector to decline as the ADP report suggested employment in the manufacturing and construction sectors retreated in May. Likewise, we anticipate mean-reversion in services sector employment following the 200k+ print in April. All that said, we concede that the employment components of both ISM reports as well as jobless claims in the survey week are not signaling any of the weakness shown in the May ADP report. Hence, we see upside risks to our revised call, particularly if we get a rebound in retail sector after three notable declines between February and April.”
“All in, the household survey should show the unemployment rate remained steady at 3.6%, while wages are expected to rise 0.2% m/m. The latter should bring the annual print down a tenth to 3.1%. However, if the monthly growth rate were to round up to a “soft” 0.3% advance, that would keep wage growth unchanged at 3.2% y/y.”
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