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ADP Employment: Surprise Decline

February 2, 2022
Bottom Line:   ADP reported a sharp decline in employment in January, well below expectations after a strong December. Leisure and hospitality jobs led the decline but job losses were widespread with nearly every industry seeing a decline. While the report is concerning for the trend rate of job creation and the potential that the recovery is stalling, it is too early to draw firm conclusions. Two major factors skewed January lower - 1. the omicron variant caused many workers to stay home -- and those who didn't get a paycheck in January were considered a job loss; and, 2. seasonal adjustments have proven difficult since the pandemic as typical calendar-based behaviors shifted. These same forces will be at work in the government's payroll report due Friday, suggesting downside risk to the consensus of 150k.
ADP National Employment FELL by -301k in January, compared with the consensus estimate for a gain of 180k. Meanwhile, the revisions to the prior 3 months subtracted an additional 40k to the previous estimate. Over the past 12 months, private payrolls have increased by an average of 470k per month, lifting employment to 4.7% ABOVE its year-ago level.
Jobs in Goods-Producing Industries FELL by 27k jobs but Manufacturing lost 21k workers. Moreover, Construction lost 10k jobs.  Meanwhile, Service-Producing Industries FELL by -274k jobs with Professional/Business Servicesfiring -3k workers, Trade/Transport/Utilities subtracting -62k, and Financial Activities declining by -9k workers.  Small Firms fired 144k workers, Medium-Sized Firms fell by 59k employees while Large Firms subtracted 98k positions.