ADP has released its National Employment Report for April. Non-farm private employment increased 32,000 during the month on a seasonally adjusted basis. ADP also reported an upward revision of 19,000 jobs for March. The two consecutive net employment gains reported by ADP indicates that job loss may have bottomed and the slim increase in employment confirms a positive trend is underway. The massive governmental intervention to recapitalize the banking sector and initiate stimulus programs have stabilized the economy. The abatement of extreme risk aversion in the credit markets, favorable interest rates, improving consumer sentiment, low inflation and the dramatic rebound in securities markets are all positive growth drivers for the economy.

Highlights of the ADP report include:

• Estimates non-farm private employment in the service-providing sector increased by 50,000.
• Employment in the goods-producing sector declined 18,000.
• Employment in the manufacturing sector rose for the third consecutive month by 29,000 jobs.
• Employment in the construction sector dropped by 49,000.
• Large businesses with 500 or more workers added 14,000 jobs
• Medium-size businesses, defined as those with between 50 and 499 workers increased by 17,000.
• Employment among small-size businesses with fewer than 50 workers, increased by 1,000 in April.
• Employment in the financial services sector dropped 14,000, resulting in over three years of consecutive monthly declines.

Overview of Numbers

The net gain of 32,000 jobs for the massive US economy is an admittedly weak gain for an economy that has shed 11 million jobs but it is an indication that the economy is stabilizing.

The correlation of the loss of jobs in construction and financial services is an indication of a US economy that continues to transition its dependency on residential and commercial real estate development. The difficult conditions in the commercial and residential real estate market will continue as excess inventories brought on by high foreclosure rates continue to be worked off. As the ADP report highlights construction employment has declined for thirty-nine consecutive months, bringing the total decline in construction jobs since the peak in January 2007 to 2,159,000. Its clear that the US economy has lost two critical recovery drivers.

Soft conditions in the construction sector weighs heavily on small business job creation. Most contractors are small businesses and with the anemic rate of new housing construction small business job creation will continue to be soft.

Specialty retail is another large component of the small business market. Improving consumer sentiment will help this sector. However small retailers have suffered massive business closures during the recession. A robust recovery in this sector will not commence until commercial lending for start ups and business expansion becomes more readily available from the banks.

The report also indicates that the goods producing sector of small businesses shed 24,000 jobs during the month to continue the trend in the deterioration of small manufactures. This decline was offset by a 25,000 gain in service based jobs. The growth of the service sector of the US economy continues at the expense of the manufacturing sector. The growth of small business service sector indicates that businesses continue to managed fixed costs of their business by outsourcing various services.

This ADP report is a positive indication that we may be at a bottom of the economic cycle. Bottoms don’t mean that things are improving they indicate that conditions are not worsening. The economic recovery is still confronted with headwinds. The oil spill in the Gulf of Mexico, the economic and growing political instability of EU countries and the cooling off of the Chinese economy may present some challenges to a sustained and robust recovery in the United States.

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For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

Risk: unemployment, recession, recovery, SME