Nonfarm Payroll Numbers Could Be Affected by Dismal ADP Report

Wall Street economists were already predicting a horrible number when the June jobs report is released on Friday at 8:30 a.m. ET, but the evidence is quickly pushing experts to reevaluate their predictions for a more demoralizing figure.

The number is widely expected to be a negative; however, some feel the private sector should show a net job gain, which would be welcome news for all who are trying to find some evidence the economic recovery is in place.

The government reported last month that more than 400,000 net new jobs were added to payrolls for the month of May. On the surface, the figure is astonishing, but the majority of those new jobs came in the form of temporary census workers with a very small gain in private sector employment.

Fast-forward to the June numbers, and the opposite is expected to occur. The government has already announced that 25% of those same temporary census workers hired in May were eliminated in June. The lost jobs are expected to push the month-to-month number into the negative category. However, there is hope the private sector added over 100,000 net new jobs for the month.

Any figure below the six-digit mark and economists may be left wondering what happened.

Considering that $787 billion in stimulus was added to the nation's economy, many felt the employment picture would be robust by now. Job growth should be seen, but after Wednesday's dismal report from ADP, it is clear that private employers are going to be slow to add to payrolls.

In the ADP report, Wall Street analysts predicted a gain of 60,000 new hires in the private sector for the month of June; however, the number reported was 13,000. Following the release, some forecasters marked down their predictions for Friday's employment report.

For example, Nomura Securities is now forecasting a rise of 100,000 private sector jobs, much less than the 140,000 previously expected. So far, though, the reductions haven't been large enough to move the median forecast of a loss of 110,000 total jobs and a gain of 110,000 for private payrolls, according to MarketWatch.

The outlook is even cloudier as economists worry about the stability of the U.S. economy and its ability to create permanent jobs for the approximate 15 million out-of-work Americans.

Joel Prakken, chairman of Macroeconomic Advisers, which oversees the ADP survey, says better growth in wages and salaries will be need to support second-half growth given how important consumer spending is to U.S. economic growth. "But labor income can't grow strongly when payrolls are barely increasing," he says.

As MarketWatch concludes: "The week ADP number follows a series of other disappointing trends. Sinking stock prices, euro zone debt problems and sluggish factory reports from Federal Reserve regional banks suggest the economy hit an air pocket at the end of the second quarter. Continued weak hiring raises concerns about strength in the second half of the year."

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