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Wednesday, April 30, 2008

Good Morning!

I have been following ADP employment for a while. In particular, this report has employment up 10,000 in April (nonfarm private), but revised the March gain down to 3,000. Not very good at all. But this is the most interesting part of the report:
Large businesses, defined as those with 500 or more workers, saw employment decline 18,000, while medium-size companies with between 50 and 499 workers declined by 14,000. Conversely, employment among small-size businesses, defined as those with fewer than 50 workers, advanced 42,000 during the month.
The relatively strong April CIT receipts bear this out - and that was not what I was expecting. The sample size on this report is pretty good - it is about 20% of full-time workers or roughly 15% of all workers.

Advance GDP is reported at 0.6%, higher than most estimates. PCE grew at 1%, but spending on durable and nondurable goods dropped (Table 1). Services accounted for all of the growth in PCE. Moving to Table 3 (now we are in billions of $), the total gain for Q1 was 17.4. Gross Private Domestic Investment was down again by 21.1. Fixed investment was down 45.6, and the build in nonfarm inventories added 20.1. That will be a subtraction from Q2.

Much of the positive GDP is actually coming from the inflation adjustments on imports/exports. GDP is just one measure of growth in the economy. It may not be the best. On a current dollar basis, the trade deficit increased 28.4. After the magic of inflation adjustments, that gets converted to a 7.3 gain. If you really believe that this indicates growth in the economy, you live in a different economic universe than I do.

Final sales of domestic product dropped 6.1.

Bottom line on this, before revisions, is that it is a poor report. Without the inventory build GDP would be negative. Without the magic of realifying away our growing current dollar import/export balance, GDP would be negative. Investment in nonresidential structures was negative.

Moving along to Table 8, which measures changes in percent from the year-ago quarter, we see that there is improvement in the rate of decline of gross private domestic investment. The trajectory is as follows:
06 Q4: -3.6%
07 Q1: -6.6%
07 Q2: -5.7%
07 Q3: -3.5%
07 Q4: -3.7%
08 Q1: -2.8%
We will have passed trough in the overall business cycle when that sucker turns positive again.

Even this heavily massaged anemic "growth" is negative on a per capita basis...whatever the official pronouncements, this does not appear to bode well for corporate profitability.

The small company bit seems to be a puzzler, as smaller companies are less exposed to favorable currency by international sales?

Thanks MoM, for digging in to the numbers like you always do!
"Conversely, employment among small-size businesses, defined as those with fewer than 50 workers, advanced 42,000 during the month."

Yes, I agree with energyecon - definitely a puzzle.

Any further breakdown available to see where the new jobs are coming from? And so hypothesize why?
It's something of a classic pattern - as the economy falters, small business picks up some of the slack.

Also it should be due partly to the pick up in production in some areas. That sort of thing has a pretty strong diffusion through the economy, much stronger than a retail business.
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