Lower-than-expected fall in private payrolls lifts US markets ahead of Friday’s NFPs

By Thomas Belayneh

Automatic data processing’s (ADP) closely watched national employment report on the private sector payrolls it processes revealed 2,760,000 million jobs were lost in the month to 12th May. This was far better than the consensus expectation of a culling of 9,000,000 million jobs and prompted the S&P 500 to rally 1.38% higher today.

Large businesses with 1,000 employees or more made up the lion’s share of total job losses at 48.3% (1,332,000) whilst small businesses of 49 or less employees made up 15.8% (435,000) which was the least of the three category sizes reported by Moody’s and ADP.

At the sector-level, goods-producing companies made up 28.8% (794,000) of the total fall in payrolls with manufacturing as its weakest sub-category. Services showed a more dramatic fall of 1,967,000 (71.3%) with the travel/transportation/utilities sub-category bearing the blunt of job losses in services.

One bright spot, however, is gains in education employment with an increase of 166,000, which could be an indication of an increase in the take-up of online education services while school children stay at home.

The falls in both sectors were far less than the prior month period to 12th April. Last month’s report showed a cataclysmic cutting of 2,356,000 and 17,200,000, respectively, in goods-producing and services jobs, however ADP noted in this month’s report that it believes the worst of the job losses is now behind us.

Today’s remarkable figures bode well for Friday’s non-farm payrolls report from the US Department of Labour. The consensus expectation for May’s report is for the loss of 8,000,000 jobs following last month’s horrific print of the loss of 20,500,000 jobs.

As the US gets underway with the phased re-opening of its economy, the market will be watching closely for early signs in these economic data and employment releases that the recent rally in stocks is justified.

Unperturbed by eight straight days of civil unrest in several US cities, following the death of George Floyd while under arrest in Minnesota, the S&P 500 has continued its rampant rise from March lows and is now up 40% from 23rd March.