2 More Warning Signs for the Economy

Thursday, June 2, 2011
By Paul Martin

By James Picemo
SeekingAlpha.com

Here we go again: Another batch of economic updates and another round of disappointment. That sums up the latest numbers released this morning via the ADP Employment Report and the ISM Manufacturing Index. In both cases, the trend has taken a turn for the worse. The bad news arrives on the heels of yesterday’s discouraging trio of economic reports. Stepping back and considering the latest updates suggests that we’ve entered a nasty pattern for macro news.
Let’s take a closer look at today’s data releases, starting with ADP’s estimate of private payrolls for May. Although the labor market continued to expand last month, it did so by the thinnest of margins, according to ADP. May’s nonfarm private payrolls rose by a net 38,000 on a seasonally adjusted basis — the smallest gain since last September and a huge drop from April’s 177,000 increase.

“A deceleration in employment, while disappointing, is not entirely surprising,” ADP advised in a press release. “In the first quarter, GDP grew at only a 1.8% rate and only about 2-1/4% over the last four quarters. This is below most economists’ estimate of the economy’s potential growth rate and normally would be associated with very weak growth of employment.”

The dramatic slowdown in ADP’s estimate of job creation strongly suggests that Friday’s employment report from the U.S. Labor Department will also disappoint. Indeed, the sharp decline in the ADP number is so far below the last government payrolls estimate that it’s all but certain that this gap will close.

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