ADP Employment Figures Disappoint, Support the Case for Second Half Rate Cuts

This morning, payroll processor ADP reported private payrolls rose by 37,000 employees in May, compared to the expectation for a gain of 111,000 and April’s downwardly revised increase of 60,000…

The report brings the year-to-date average monthly gain to 102,800 compared to the 144,300 number last year and the pre-pandemic average of 173,400…

Pay was little changed with job changers seeing an increase of 7% and job stayers experiencing a 4.5% gain…

The most interesting part is when we look at the data compared to the typical 2017-2024 monthly gain. As you’ll notice in the following chart, ADP hiring results tend to reaccelerate in May after bottoming in April…

The numbers tend to rise over the summer months, before peaking in August. But, as you can see, the current numbers suggest a deceleration in employment. This trend is also evident in the quarterly employment data...

The real rate of interest (fed funds minus inflation) based on personal consumption expenditure (PCE) suggests our central bank has roughly 230 basis points of rate cut room in its economic slowdown fighting arsenal…

Based on what the employment numbers are telling us, economic growth is likely to see more downward pressure. That should also weigh on inflation as price is a function of demand. In other words, the case is being built for monetary policy easing later this year.

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