Good economic news in short supply.
It's already been a terrible week for economic news, and the worst may be yet to come when the Department of Labor's monthly jobs report is released Friday. Today's news about
manufacturing from the Institute for Supply Management and about
private-sector employment from ADP Employment Services have one thing in common with other recent reports: They missed expectations. And not in a good way.
Way below expectations in the case of ADP. It reported that non-farm payroll jobs rose a meager 38,000 in May. That's compared with 177,000 ADP reported for April. The number comes from ADP payroll data for 340,000 business establishments. Of note in the report is that construction employment fell by 8000 jobs in May, reversing a gain in April. Since the recession began in December 2007, construction jobs have decreased 2,124,000, according to ADP's measures.
As Tuesday's Case Shiller report on still-falling housing prices clearly showed, the drop in construction jobs isn't going to be repaired any time soon. And, as Bill McBride says, the situation is worse than the media have reported. There are simply too many houses on the market, sales are slow and very low levels of new residential building are occurring. Usually, housing construction is a key factor in boosting economic recovery.
"This [ADP report] only adds fuel to the argument that the slowdown story is here in the U.S.," said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York.
"This is exactly what we do not want when other significant data shows things are slowing down as well."
Way below expectations on manufacturing, too. Given Federal Reserve regional reports over the past month, most analysts knew ISM's report on manufacturing would not be rosy today. But it was a good deal worse than their estimates. Although the manufacturing sector has now grown every month for nearly two years and has been a bright spot overall, ISM's Purchasing Managers Index of that growth dropped sharply in May to the lowest level since September 2009. The PMI considers 11 indicators, including new orders, inventory levels, production, supplier deliveries and the employment environment.
Bradley J. Holcomb, chair ISM's Manufacturing Business Survey Committee, said:
"The PMI registered 53.5 percent and indicates expansion in the manufacturing sector for the 22nd consecutive month. This month's index, however, registered 6.9 percentage points below the April reading of 60.4 percent, and is the first reading below 60 percent for 2011, as well as the lowest PMI reported for the past 12 months. Slower growth in new orders and production are the primary contributors to this month's lower PMI reading. Manufacturing employment continues to show good momentum for the year, as the Employment Index registered 58.2 percent, which is 4.5 percentage points lower than the 62.7 percent reported in April. Manufacturers continue to experience significant cost pressures from commodities and other inputs."
The consensus of experts surveyed by Bloomberg ahead of ISM's release of its report was that PMI would only drop to 57.5 percent.
Scott Paul, Executive Director of the Alliance for American Manufacturing (AAM), said:
"This slowdown shows that we cannot take growth in manufacturing for granted. Our nation urgently needs a jobs and manufacturing strategy, yet it is nowhere on the agenda of this Congress. We have put together a business-labor plan that enjoys broad support from voters. Now we hope Washington will start to listen. We will never rebuild our economy without strengthening manufacturing in our nation."
The manufacturing fall-out adds to concerns that the second quarter of 2011 will not reflect a recovery from the tepid news about the first quarter, when the annualized growth of the economy was 1.8 percent. And it reinforces the views of growing numbers of economists and business analysts who are revising their estimates for the year's overall GDP growth from as high as 4 percent to as low as 2 percent.
The expert consensus for Friday's official employment report is that the economy generated a seasonally adjusted 190,000 jobs in May, a considerable drop from February, March and April when the average monthly increase clocked in at 233,000 jobs. But the ADP number, the ISM number, the GDP number and stubbornly high initial claims for unemployment compensation benefits all point to that 190,000 estimate as optimistic, perhaps wildly so.