This Friday’s unemployment and nonfarm payrolls report from the U.S. Department of Labor will be looked at quite closely by economists and investors alike to see just how strong the current job market looks in America. The February payrolls growth was so low compared with prior months (just 20,000) that some economists suggested that the jobs market had officially peaked. 24/7 Wall St. had also pointed out in mid-March how some non-government reports were showing that the jobs markets may be peaking.

One precursor for analyzing the Labor Department’s payrolls numbers is the monthly ADP National Employment Report. This measures ADP’s actual payrolls rather than just being from a government sample group each month. ADP has now estimated that private sector payrolls rose by 129,000 jobs in March from February. The commentary on the payrolls growth is far more menacing than the actual report.

While that number is higher than the formal Bureau of Labor Statistics report for last month, it’s important to understand that last’s month’s ADP report showed 183,000 new jobs in February and then the government number came in at only 20,000 new jobs. So this new report from ADP is only about 70% of the prior month’s report, and Dow Jones is projecting that the March payrolls growth will be 175,000 nonfarm payrolls. The Econoday estimate is 170,000 for this Friday’s jobs report.

Using the ADP report to predict the formal government payrolls data is not science. That said, it is frequently used for a directional indicator of the government report. That “directional” indicator implies that the ADP data went lower by 30%. while economists are calling for a much stronger pop from the government report this Friday.

Of the 129,000 new payrolls counted by ADP, small businesses (less than 50 employees) added only 6,000 jobs, a rather low mark. Medium-sized businesses (50 to 499 employees) added 63,000 jobs, and large businesses (500 or more employees) added 60,000 jobs.

With ADP and Moody’s both involved in the creation of this monthly private sector report, both groups are signaling a much weaker jobs market than the public has been accustomed to seeing in 2018 and 2017.

Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, said:

March posted the slowest employment increase in 18 months. Although some service sectors showed continued strength, we saw weakness in the goods producing sector.

Mark Zandi, chief economist of Moody’s Analytics, said:

The job market is weakening, with employment gains slowing significantly across most industries and company sizes. Businesses are hiring cautiously as the economy is struggling with fading fiscal stimulus, the trade uncertainty, and the lagged impact of Fed tightening. If employment growth weakens much further, unemployment will begin to rise.

As far as how scientific the “directional indicator” has been, the history of the report correlation is rather mixed over time. There are some issues that may be affecting the jobs growth, as wages have risen handily, and as many as 18 states implemented higher minimum wages for 2019. Also, retail and auto sales have been mixed to disappointing regionally, and then there are the ongoing issues around China and trade. This will make the Labor Department’s revision for February that much more important. Either way, the muted tone of ADP may be dragging some of Friday’s payroll expectations lower.

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