- US ADP employment report a bit weaker than expected, but service-providing employment strong
- Other US labour market indicators suggest Friday’s job report will likely improve
- Russia: A tale of two stories; The economy plunges but panic abates
US ADP employment report a bit weaker than expected…
Private sector employment increased by 169K in April from a slightly downward adjusted 175K the previous month. Looking at the composition of the report, manufacturing shed 10K jobs after losing 3K in March. The impact of lower oil prices on the energy related industry are weighing on manufacturing activities, while the strong dollar and port disruptions are also affecting manufacturing activities that are export related. Meanwhile, the construction industry added 23K jobs, up from 21K last month. This sector is sensitive to weather conditions, suggesting that we should see further improvement in the coming months.
…but service-providing employment improving
Despite the weakness in goods-producing employment, service providing employment in the ADP report rose by 170K in April, almost unchanged from March’s reading. The sectors that increased were professional business which contributed with 34K jobs in April up from March’s 28K, while trade and transportation grew by 44K up from 41K the previous month. This is in line with other reports that suggest that jobs in the service sector remain solid. Indeed, April’s US ISM non-manufacturing index, released yesterday at 57.8, showed the highest figure since November. Most of the components, including the employment index, increased between March and April. This is consistent with our view that payroll growth will be stronger in the second quarter.
Friday’s US employment data should, however, improve
This report comes ahead of the nonfarm payrolls to be released on Friday. As a result of ADP’s methodology, the weak April print might in part reflect the influence of the weaker March non-farm payrolls report. Other labour market indicators have improved lately. Jobless claims, for instance, have been at historical lows. Nonetheless, the ADP employment report suggests that there are some downside risks to our forecast of 225K for Friday’s report.
Russia: A tale of two stories; The economy plunges,…
The economic situation in Russia can best be described as a tale of two stories. On the one hand, incoming data are suggesting that the recession is deepening. Consumption is taking a turn for the worse as households’ real purchasing power is being eroded by higher inflation, while firms have continued to shelve their investment plans. All in all, we think that the economy contracted by 3% yoy or so in the first quarter.
…but panic abates
However, on the other hand, the panic that we saw at the end of last year that forced the central bank to raise rates to 17% has clearly abated. Indeed, since the end of January, the ruble has appreciated by around 28% helped by a modest rise in oil prices, CDS-spreads have come in by around 250bp, while the upward momentum in inflation on the back of past ruble weakness is waning. All this allowed the central bank to bring rates down by a cumulative 450bp so far. Looking forward, we think that the central bank will continue to sharply loosen policy, with its key rate set to hit 9% at the end of last year. A loosening of monetary policy and lower inflation should help the economy to stabilise at the end of the year, before returning to modest growth in 2016.