ADP Report: Sharp Decline InNonfarm Payroll Employment Continues

The sharp decline in payroll employment continued this month, but the rate of decline recently has stabilized. The latest report from the payroll processor ADP, in their National Employment Report, indicated that private nonfarm payrolls fell 254,000 during September. That followed a revised 277,000 August decline which was slightly shallower than reported initially. The latest reading was the twentieth consecutive monthly decline. The monthly change was, however, the smallest since July of last year and two-thirds the size of the worst reading last March. The three-month annualized rate of decline in payrolls also eased to 3.2% from its March record of 7.1%.

ADP compiled the estimate from its database of individual companies' payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator.

U.K. consumer confidence jumped in September by the most since 1995 as optimism about the economy’s prospects rebounded, according to GfK NOP. The index of confidence jumped by the greatest amount since 1995 and the level reading of -16 is it’s highest Since January of 2008.

Still the headline reading is only in the 57th percentile of its 10-Year range. And the headline, at -16, is still negative.

The current and past readings on the index are still sour. The financial situation over the past 12 months is a bottom 29 percentile reading while the current financial situation is rated in the 36th percentile a bare-bones increase. But for the next 12-months the rating flies up to 71st percentile. Even with that, the environment for making a major purchase only rises from a 45th percentile response currently to a 48th percentile response in the future. Improvement? Yes! Much improvement? No!

The general economic situation is rated in the 27th percentile over the past 12 months that jumps to the highest reading in at least 10-years over the next 12-months.

Deja-What?
We have seen this sort of thing before. We got exactly the same sort of response from Italy’s consumers within the last week. There is a great belief on the part of consumers that in the next12-months things are going to be much better than they were and than they are. Meanwhile, although global stock markets are rising sharply, there is a lot of stock market pessimism and the rise itself has been accomplished on low volume for the most part. Government projections for growth are moderate-to-downbeat and private sector economists have been dragged every step of the way to an improved forecast by ever improving economic data. It is curious that with pessimism in the wind in the woodwork everywhere that consumers are so upbeat. Are they right to be confident –do they know something? Or, are they just naïve? In Italy we have observed that a day after its consumers were so upbeat the business sentiment survey there backtracked.

Expectations…
Very clearly this is a recovery with expectations scattered to the winds. It is hard to tell what a given group will think and why, let alone how long, that they will think it. We have markets that outperform expectations but without believers. After the last 12-months it is not surprising to have confusion, but despite some very active government intervention it is strange indeed that consumers are the most impressed and businesses are skeptical and financial experts seem apoplectic with the good news to the point to disbelief or even rejection.

Impact on performance
All of this has to affect how the economy actually performs. We know that expectations are important but we also know they are not etched in stone and we can debate how much they affect behavior. For the time being the consumer seems to be the backbone of whatever optimism we have. This is clear in the UK and in the Italy; it seems somewhat the same in the US. Will it be enough to keep the consumer-led expansions going? Since we depend on the consumers’ spending it may be. But note the dark side to the UK response on spending; it is different from the Italian response. In the UK there is skepticism that the buying climate will improve by much but in Italy a big improvement is expected in that climate. On balance we can say that consumers appear to be more optimistic than most but we cannot say that their optimism is for the same reasons and therefore it might not be well-grounded.

The second revision of GDP growth last quarter showed that activity fell slightly less than initially estimated. A 0.7% (AR) 2Q decline compared to 1.0% declines indicated in the two prior reports. During the course of the numbers' release, the decline in domestic final demand has been lessened to 0.9% after a 6.4% collapse to open the year. That easing has offset an increased negative influence from inventory decumulation.

Inventory decumulation continued as the major drag on GDP growth last quarter with a 1.4 percentage point reduction that was unrevised. Final demand revisions were modest. Consumer spending is now estimated to have fallen at a 0.9% annual rate (-1.7% y/y) led by a 5.6% (-8.8% y/y) drop in durables consumption. Residential investment fell at a little-revised 23.2% rate -25.6% y/y) and business investment dropped at a 9.6% rate (-19.7% y/y) which was similar to earlier reports. Government investment rose at a little revised 6.7% rate (2.5% y/y) and exports declined at a lessened 4.1% rate. Imports dropped 14.7%; therefore, net-foreign trade improvement added 1.7 percentage points to 2Q GDP growth.

Corporate profits in Q2 rose 3.7% (-12.6% y/y) pre-tax, including IVA and CCA, from Q1 which was slightly less of a rise than reported initially. The latest gain followed a 5.3% 1Q increase but both just dented a 22.8% 4Q decline. Financial industries saw their quarterly profits gain 12.0% in Q2 (-1.8% y/y) after having nearly doubled in Q1 versus 4Q. Nonfinancial company profits improved last quarter by a marginally unrevised 4.7% (-7.5% y/y). Rest of world profits fell for the fifth quarter in the last six and by 4.6% (-17.9% y/y).

The GDP price deflator was unrevised and was unchanged from 1Q. A 1.4% gain (-0.2% y/y) in the PCE price index followed a 1.5% 1Q decline. Overall, the domestic final sales price index rose at a negligible 0.5% rate (-0.3% y/y).

The U.S. National Income & Product Account data are available in Haver's USECON and the USNA databases.

Excerpts from Dallas Fed Chairman Richard W. Fisher's remarks before the Texas Christian University Business Network of Dallas can be found here.