And so the thunderous herd of highly overpaid and always wildly inaccurate Wall Street lemmings better known as "economists" starts moving. Yesterday it was that paragon of the 0.000 batting average Joe LaVorgna who cut his NFP forecast from 300,000 to 225,000 (a number we expect will be cut to about 155,000 today, or indicative that little Joey was off by about 100% as usual), and today Morgan Stanley has already fired the reactionary salvo, trimming its NFP forecast for this Friday's number from 175,000, accompanied by Credit Suisse which cuts from 185,000 to 120,000. And these lemmings are paid 7 digit salaries why again? So far the most resilient is Goldman's Jan Hatzius, who just threw up all over the ADP number, but has so far refused to cut his NFP prediction of 150,000. We give him at most 48 hours before he does following today's upcoming abysmal CPI number.
ADP employment +38k in May, vs. median forecast +175k.
1. The ADP forecast of private employment growth in May was +38k, much lower than expected. The ADP report combines publicly available information (jobless claims and past payroll growth) with proprietary data on employee headcounts to forecast the official BLS estimate of private payroll growth. Although the ADP report has a mixed track record for predicting changes in private payrolls, the size of the surprise this month was quite large, and therefore suggests downside risk to consensus payroll forecasts.
2. Weakness in the report was broad-based. Manufacturing employment fell by -9k after increasing by 20k in April. We believe this reversal likely reflects supply chain disruptions in the auto sector. However, employment growth also weakened in other areas. For example, service-providing firms added just 48k jobs, down from 141k in April. Employment growth was also softer across all firm sizes. We therefore see the report as evidence of a slowing in employment trends.
3. At this time, we are making no changes to our payroll forecast of +150k. The ISM report later this morning and jobless claims tomorrow may offer additional information into the source of recent weakness.