ADP jobs report shows weakening service sector

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Published Date 6/5/2024

ADP reported May private jobs weaker than forecasts at 152K against estimates of 175K, April jobs revised lower, from 192K to 188K. The increase the lowest in four months. The service-providing sector added 149K jobs, mostly trade, transportation & utilities (+26K); education/health services (+46K); financial activities (+28K); and leisure/hospitality (+12K), while job losses occurred in information (-7K) and professional/business services (-6K). The goods-producing sector added 3K jobs, led by construction (+32K), while both manufacturing (-20K) and natural resources/mining (-9K) shed jobs. Meanwhile, annual pay gains for job-changers fell for the second month to 7.8% while pay growth for job-stayers held steady for the third month at 5%. "Job gains and pay growth are slowing going into the second half of the year. The labor market is solid, but we're monitoring notable pockets of weakness tied to both producers and consumers," said Nela Richardson, chief economist, ADP. There was no reaction to the weaker data ahead of Friday’s official data from the BLS.

ADP jobs and BLS jobs can deviate quite a lot, but after the decline in rates the last few days that there wasn’t any initial reaction as traders awaited the May ISM services sector index at 10 am. The labor market is cooling, whether the BLS jobs on Friday are better or worse (expected +175K) the recent data isn’t an outlier. April JOLTS job openings yesterday declined to the lowest level since 2021, continuing jobless claims are increasing, the ISM manufacturing index on Monday continued to decline under 50 that sent interest rates down.

Earlier this morning weekly MBA mortgage applications declined last week; total apps were down 5.2% from the prior week, purchase application down 4.4% and re-finance apps fell 6.8%. “After adjusting for the Memorial Day holiday, both purchase and refinance application volumes were down, with purchase activity specifically 13% below last year’s level,” Mike Fratantoni, chief economist, and senior vice president at the Mortgage Bankers Association, said in a statement.

Each key data point these days is measured against when the Fed will begin lowering rates; today’s ADP data, the JOLTS job openings, and the ISM manufacturing index have moved the needle to the first cut in November from December.

At 9:30 am the DJIA opened +49, NASDAQ +113, S&P +20. 10 year note 4.31% -2 bps. FNMA 6.0 30 year coupon at 9:30 am +6 bps from yesterday’s close and +17 bps from 9:30 am yesterday. With the ISM services index at 10 am lenders will hold off pricing until that is reported.

At 9:45 am May PMI global services index expected at 54.8 from 51.3 in April, the index reported at 54.8.

At 10 am May ISM services index expected at 50.7 from 49.4, unlike the manufacturing index on Monday the service sector continues better at 53.8.

Tomorrow the ECB will lower its base rate by 25 bps. Weekly jobless claims expected at 216K from 219K. Q1 productivity and unit labor costs, another look at inflation, productivity +0.2% annually and unit labor costs +4.7%.

Source: TBWS

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