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ADP Shines Spotlight on Nonfarm Payrolls, Services PMI

H.S. Borji
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ADP Shines Spotlight on Nonfarm Payrolls, Services PMI

The US private sector in June added the most workers since November 2012, the ADP Institute reported today, prompting some economists to re-evaluate their forecast for Thursday’s nonfarm payrolls report.

On Thursday the Labor Department could show the US economy added 210,000 nonfarm payrolls in June, marking the fifth consecutive month job creation was above the 200,000 mark.

The unemployment rate is forecast to remain unchanged at 6.3 percent.

Average earnings, which have stagnated this year, are forecast to rise 0.2 percent, following a similar increase in May.

The ADP report said service providers added 230,000 payrolls last month, raising optimism about the Institute for Supply Management’s non-manufacturing PMI.

ISM is expected to show the US service economy remained elevated in June, after a sharp expansion the previous month. Seventeen non-manufacturing sectors reported gains last month, although only half of those sectors reported employment growth.

On Tuesday ISM said the US manufacturing sector remained elevated in June, as new orders and production continued to support job creation. Fifteen of the 18 manufacturing sectors reported growth in June, ISM data showed.

ADP said employment levels at goods producers increased 50,000 in June, up from 31,000 the previous month.

The US dollar, having regained its footing Wednesday on the heels of the ADP report, could face considerable price action Thursday ahead of the July 4th weekend. Demand for the greenback has remained soft, as the markets continue to speculate about the pace and timing of a Federal Reserve interest rate hike.

Fed Bank of San Francisco President John Williams indicated earlier this week the central bank won’t rush to raise interest rates.

“We won’t raise interest rates for some time, which is the real market of tightening policy,” Williams said in a speech on Monday.

On Wednesday Federal Reserve Chair Janet Yellen defended the central bank’s accommodative policies by claiming that lower rates are no destabilizing the banking sector. While acknowledging “pockets” of increased risk-taking, Yellen said those concerns could be addressed through existing regulatory tools.

Some market participants are concerned record low interest rates could be setting the stage for another economic collapse. Others argue that rock bottom rates are still needed to ease the US economy toward recovery.

The Fed has held its benchmark rate near zero since December 2008.

The Fed’s decision to hold off on rate hike speculation was vindicated after the markets learned the US economy contracted 2.9 percent annually in the first quarter, according to revised estimates from the Commerce Department. This marked the worst quarterly performance since the first quarter of 2009.

The first quarter slowdown prompted the Federal Reserve to slash its 2014 growth estimate from nearly 3 percent to between 2.1 percent and 2.3 percent.

The economy is forecast to have expanded between 3 percent and 4 percent annually between April and June.

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