After ADP, Markets Expect Lower Consensus for Nonfarm Payrolls

Economists appear to be unanimous in their calls for increased downside risk to Thursday's BLS nonfarm payrolls report, following a weaker-than-expected ADP private employment report for June. ADP figures showed a decline of 79k jobs in the month against expectations of only a 20k loss following three months of upside surprises.

Paul Ashworth, senior U.S. economist at Capital Economics, said the data are consistent with a monthly decline worse than 100k in the BLS nonfarm payrolls report. "This weaker ADP figure backs up what most of the other indicators have been telling us: conditions in the labour market are still weakening, albeit gradually," he said.

"Expect a weak official report tomorrow," added Ian Shepherdson, chief U.S. economist at HFE, who called the previous month's 15k downward revision "grim."

The decline in ADP marks the worst on record since November 2002, and the previous month's reading was revised down to a 25k gain from an originally reported 40k advance. The service providing sector was responsible for a -3k decline in employment, the first loss since November 2002, while jobs in the goods producing sector fell 76k and manufacturing pulled back 44k.

Relative to previous months, the ADP figures stand more in line with expectations for Thursday's nonfarm payrolls report from the Bureau of Labor Statistics, the benchmark employment figure for the United States.

Prior to the release of ADP, economists were expecting the BLS numbers to report a drop of 60k. But Sal Guatieri, senior economist at BMO Capital Markets, said markets will likely expect a worse figure now, and added that he revised his own forecast down to -100k from -60k.

Speaking on CNBC, Joel Prakken, chairman of Macroeconomic Advisors, said the first half of the year dodged a recession but that the second half could be dangerous, as rising oil prices are an increasing concern. Prakken said he won't be surprised to see additional declines in the coming months.

The report called the decreases "broad based across industrial sectors," noting 34k losses in construction and 3k losses in financial services.

Charmaine Buskas, senior economics strategist at TD Securities, said that when adjusted for government employment, the ADP report indicates "a significantly weaker than expected labour market landscape." She also noted, however, that the decline could be a bounce-back "from a string of strong months that was not matched with the actual nonfarm payrolls report."

By Patrick McGee and edited by Stephen Huebl