ADP Reports Solid Private Sector Job Growth

• Treasury yields are near unchanged this morning, with a slight downward bias, as investors await the latest tariff details. Yes, it’s “Liberation Day” with the President scheduled to give a Rose Garden address at 4pm ET, hopefully providing more details around the reciprocal tariff plans. In the meantime, the data flow this week continues with the ADP Employment Change numbers for private sector hiring in March surprising to the upside. Currently, the 10yr Treasury is yielding 4.13%, down 3bps on the day, while the 2yr is yielding 3.86%, down 1bp on the day.

 

• The latest speculation on tariffs is for a 20% tariff on all imports into the US, with special exemptions that draw a sympathetic ear in the administration. We’ll see how much is learned and how much is still left unknown after today’s Rose Garden address.

 

• Today begins a string of hard data hitting the market and ADP has already released their March estimate of private payroll gains with a sizeable increase from 84 thousand new jobs (77 thousand initially reported) in February to 155 thousand in March which exceeds the 120 thousand expected. With the Friday BLS payroll report looming, and its current estimate of 135 thousand private sector jobs, today’s report may have analysts revising up their estimates for Friday. However, remember last month ADP initially reported 77 thousand private sector jobs while the BLS had it at 140 thousand. So, take today’s number with a note of caution as you sharpen your Friday forecast.

 

• Also in the ADP report, Job Stayers saw incomes rise 4.6% over the past year which is down a tenth from last month while Job Leavers saw incomes rise 6.5% which is two-tenths lower than the prior month. These levels were much higher in the go-go days following the post-Covid reopening so it continues to look like workers’ wage gains should not be a source of wage-push inflation. The BLS annual wage gains have been running around 4.0% with March expected at 3.9%.

 

• The ISM Manufacturing Index for March was released yesterday and it was mostly bad news. The overall reading slipped back into contraction territory (49.0 vs. 50.3) while the Prices Paid component soared again (69.4 vs. 62.4) and the Employment component slipped as well (44.7 vs. 47.6). The New Orders index also fell (45.2 vs. 48.6) and all that has increased concerns over both growth and inflation. We’ll see how the ISM Services Index fares tomorrow, but this is another of those soft data reads that is clearly signaling slowing growth and increasing price pressures.

 

• Also yesterday, the Job Openings and Labor Turnover Survey (JOLTS) for February was little changed from January as openings slipped about 200 thousand positions (7.568mm vs. 7.740mm) while the Quits Rate (voluntary separation as a percent of total employed) remained at an adjusted 2.0% rate which is near the pre-pandemic level of 1.9%. In summary, the survey points to little change in the labor market during March, with openings and quits remaining near pre-pandemic levels. It does signal, however, a labor market much looser than the post-lockdown surge in hiring in 2021 and 2022.

 

• That brings us to our view that all the reports this week will be overwhelmed by the tariff news, but it seems certain that a slowing in growth and an increase in price pressure will remain front and center concerns for the market, it’s just a matter at this point trying to estimate the magnitude of each. With Treasury yields trending down, the market is making its statement that at some point the Fed will have to cut rates to provide relief to a slowing economy while inflation improvement will have to wait out the “transitory” impact from tariffs.

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Futures See Three Rate Cuts By Year-End

Source: Bloomberg

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10yr – 2yr Treasury Spread Hovering in the 30 – 40bps Range

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Personal Savings Rate Ticks Higher and Credit Card Balances Tick Lower – The Consumer Appears to be Taking a Breather in 2025

Source: Bloomberg