ADP Says U.S. Companies Unexpectedly Cut Payrolls

By Timothy R. Homan and Courtney Schlisserman
Bloomberg
Apr. 02, 2010

March 31 (Bloomberg) -- Companies in the U.S. unexpectedly cut payrolls in March, according to data from a private report based on payrolls.

The 23,000 decline was the smallest in two years and followed a revised 24,000 drop the prior month, data from ADP Employer Services showed today. Over the previous six months, ADP’s initial figures have overstated the Labor Department’s first estimate of private payroll losses by as little as 2,000 in February to as much as 151,000 in November.

Companies are still hesitant to add workers until they see sustained sales gains and are convinced the economic recovery has taken hold. Economists surveyed by Bloomberg News anticipate the government’s report April 2 will show payrolls increased by 184,000, in part due to temporary hiring by the federal government to conduct the 2010 census and because of better weather compared with February.

“The labor market trend is still up,” said David Milleker, chief economist at Union Investment GmbH in Frankfurt, who was the only economist in a Bloomberg News survey to forecast the ADP figures would show a loss of jobs. “Today’s numbers might have disappointed relative to expectations but indicate not in the least a change in trend. It takes some more time for private sector job creation to return to normal.”

Weather Effects

A March payroll gain in line with the median estimate is “a reasonable kind of number” because ADP’s figures aren’t influenced by weather and don’t include government payrolls which will reflect hiring on temporary workers to conduct the census, Prakken said. ADP includes only private employment and doesn’t take into account hiring by government agencies.

Stock-index futures dropped after the report. The contract on the Standard & Poor’s 500 Index fell 0.4 percent to 1,164.3 at 9:30 a.m. in New York.

“The economic recovery has not been long enough or strong enough along the way yet to produce the kind of rapid employment that people are hoping for,” Joel Prakken, chairman of Macroeconomic Advisers LLC in St. Louis, which produces the figures with ADP, said in a conference call with reporters after the report.

The ADP figures were forecast to show a gain of 40,000 jobs, according to the median estimate of 35 economists surveyed by Bloomberg. Projections ranged from a loss of 20,000 to a 100,000 gain.

March Rebound

Economists including Nigel Gault of IHS Global Insight in Lexington, Massachusetts, say severe winter storms in parts of the country last month likely depressed Labor Department payroll figures, while better weather in March will probably boost to this month’s numbers. Weather has less influence on the ADP report, economists say.

“Today’s figure does not incorporate a weather-related rebound that could be present in this month’s” report from the Labor Department, Prakken said in a statement. “It is reasonable to expect” that the government’s report will be “stronger” than the ADP estimate, he said.

The Labor Department’s report in two days is forecast to show the unemployment rate held at 9.7 percent in March for a third consecutive month, according to the Bloomberg survey median. The jobless rate has dropped since reaching a 26-year high of 10.1 percent in October.

The economy has lost 8.4 million jobs since the recession began in December 2007, the most of any downturn in the post- World War II era. In February, U.S. payrolls shrank by 36,000.

Goods Producers

Today’s ADP report showed a decrease of 51,000 workers in goods-producing industries including manufacturers and construction companies. Service providers added 28,000 workers.

Employment in construction fell by 43,000, while factories lost 9,000 jobs, ADP said.

Companies employing more than 499 workers shrank their workforces by 7,000 jobs. Medium-sized businesses, with 50 to 499 employees, cut 4,000 jobs and small companies decreased payrolls by 12,000, ADP said.

Caterpillar Inc., the world’s largest maker of construction equipment, said last week that it plans to hire 500 workers this year to expand a generator plant in Newberry, South Carolina. “The expansion is likely to take three to four years and could vary based on demand and other factors,” Jim Dugan, a Caterpillar spokesman, said March 17 in an e-mail.

Other companies are still trimming payrolls. J.M. Smucker Co., the maker of jams, Folgers coffee and Jif peanut butter, said last week it is reducing the number of North American manufacturing facilities to 18 from 22. The cuts are estimated to result in a reduction of 700 full-time positions, or 15 percent of the Orrville, Ohio-based company’s workforce.

The ADP report is based on data from about 360,000 businesses with more than 22 million workers on payrolls. ADP began keeping records in January 2001 and started publishing its numbers in 2006.

To contact the reporters on this story: Timothy R. Homan in Washington at [email protected]; Courtney Schlisserman in Washington at [email protected]