U.S. ADP Job Growth is Constrained

The ADP/Moody's National Employment Report indicated a 139,000 rise (1.9% y/y) in nonfarm private sector jobs during February. Expectations were for a 157,000 gain in the Action Economics Forecast Survey. Last month's rise followed increases of 127,000 and 191,000 during January and December, revised down from 175,000 and 227,000. During the last three months, job increases averaged 152,000, below the peak of 259,000 in February of 2012.

The ADP survey is based on ADP's business payroll transaction system covering 406,000 companies and roughly 23 million employees. The data are processed by Moody's Analytics Inc., then calibrated and aligned with the BLS data. Extensive information on the methodology is available here.

A moderate 120,000 rise (2.0% y/y) in service-producing payrolls led job growth last month. The gain was, however, half the increase in November 2012. Jobs in professional and business services increased 33,000 (2.8% y/y), transportation and utilities employment grew 32,000 (1.9% y/y) while financial activities headcount slipped 1,000 (+0.5% y/y). Goods-producing payrolls rose 19,000 (1.5% y/y). Factory sector employment edged up 1,000 (0.4% y/y) while construction payrolls increased 14,000 (3.5% y/y), the weakest monthly rise since August.

Hiring amongst small businesses totaled 59,000 (2.1% y/y). Medium-sized firms' payrolls advanced 35,000 (1.4% y/y) while jobs at large-size companies rose 44,000 (2.4% y/y).

The ADP National Employment Report data are maintained in Haver's USECON database; historical figures date back to March 2001. The figures in this report cover jobs only in the private sector. The expectation figure is available in Haver's AS1REPNA database.

The Fed's latest Beige Book covering regional economic conditions can be found here http://www.federalreserve.gov/monetarypolicy/beigebook/beigebook201403.htm

The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) plunged last month to 51.6, the lowest reading since February 2010. The latest figure fell short of expectations for 53.2 in the Action Economics Forecast Survey. During the last ten years, there has been a 75% correlation between the level of the nonmanufacturing composite index and the q/q change in real GDP for the service and the construction sectors.

Haver Analytics calculates an index using the ISM nonmanufacturing series and the ISM manufacturing sector index released Monday. The February figure fell to 51.8, also the lowest reading since February 2010. During the last ten years, there has been a 76% correlation between the composite index and the quarterly change in real GDP.

Dragging the total index lower last month was an 8.9 point drop in the employment component to 47.5. This indication of m/m contraction in non-manufacturing payrolls was the weakest reading since March 2010. During the last ten years, there has been an 89% correlation between the employment index and the m/m change in private service sector plus construction payrolls. The business activity index showed a lesser 1.7 point decline to 54.6, the weakest reading since December. The supplier delivery index nudged up to 53.0, indicating the slowest delivery speeds since March of last year. The new orders series also inched up to 51.3 but remained near the four year low. 

The prices paid index fell to 53.7 and reversed most of the gains in the prior two months. Twenty three percent of respondents indicated higher prices last month while six percent reported lower. During the last ten years, there has been a 78% correlation between the price index and the q/q change in the GDP services chain price index.

Beginning with the January 2008 Nonmanufacturing Report On Business, the composite index is calculated as an indication of overall economic conditions for the non-manufacturing sector. It is a composite index based on the diffusion indices of four of the indicators (business activity, new orders, employment and supplier deliveries) with equal weights. Readings above 50 indicate expansion in activity.

The ISM data are available in Haver's USECON database. The expectations figure from ACTION ECONOMICS is in the AS1REPNA database. 

The Mortgage Bankers Association indicated that their total mortgage market index increased 9.4% last week (-55.9% y/y) following three successive weeks of sharp decline. Applications to purchase a home rebounded 9.4% (-19.1% y/y) after four weeks of decline. Applications to refinance a loan improved 9.6% (-66.1% y/y) and made up most of the prior week's drop.

The effective interest rate on a 15-year mortgage slipped last week to 3.57% but remained up from the 2.89% low early in May of 2013. The effective rate on a 30-year fixed rate loan edged lower to 4.56% last week while the rate on a Jumbo 30-year loan slipped to 4.43%. The effective interest rate on an adjustable 5-year mortgage at 3.23% remained up from its low of 2.59% at the beginning of May last year.

Applications for fixed interest rate loans fell 57.5% y/y while adjustable rate loan applications fell 17.5% y/y. The average mortgage loan size rose to $231,600, up sharply from $209,000 averaged in February of last year. The average loan size for home purchases held at $269,400 last week and for refinancings it was $204,000.

The survey covers over 75 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver's SURVEYW database.