ADP Drops by 123,000

We’re in Jobs Week and it has a traditional timeline. On Wednesday, the ADP report comes out. On Thursday, the jobless claims report is due out. Then on Friday, the official jobs report is released.

I suspect that Friday’s report will not be good. In fact, today’s ADP was pretty bad. According to the payroll firm, private payrolls dropped by 123,000 last month.

December’s decline countered seven straight months of job growth coming out of the massive furloughs instituted in March and April as large swaths of the U.S. economy shut down to combat the Covid-19 spread.

Companies laid off a net 19.4 million workers in April and have recovered 9.9 million since, according to ADP estimates that sometimes have differed widely from the official Labor Department nonfarm monthly payrolls tally. The decline in December followed an increase of 304,000 in November, a number revised lower by 3,000 from the initial estimate.

I should caution that the ADP figure isn’t always a good predictor of the official report. Also, both reports are subject to lots of revisions.

Today’s market reaction is unusual. First is that stocks are up. Second is that they’re up by a lot. Third, it’s a strongly divided market. Cyclical stocks are doing very well while the rest of the market is somewhat flat.

By cyclical stocks, I mean industries that are heavily tied to the economic cycle. Things like cars and homebuilders.

The four major cyclical sectors are Energy (XLE), Materials (XLB), Industrials (XLI) and Finance (XLF). Sure enough, these are the top four sectors today.

Posted by on January 6th, 2021 at 12:27 pm


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