ADP Employment report +130K

(January 31, 2007) – ADP’s January National Employment Report, released yesterday, showed +130,000 jobs in January, suggesting that tomorrow’s payroll jobs number from the Labor Department may be a lot bigger than current street estimate of less than 60,000 new jobs. ADP’s estimates are taken from payroll data for their clients’ more than 24 million employees. Over time, the correlation between the two series is 87%–not perfect but good enough for government work. As you can see in the chart, we are nowhere near recession levels.

More interesting to me is that the strength is concentrated in small and medium-size companies; 94% of the job increase, or 122K of 130K new jobs are from small (1-49 workers) and medium size (50-499 workers) companies. That’s not shocking–small and medium companies normally account for nearly all job growth–but it does indicate that these companies still have an ample supply of working capital, which means the credit crunch has not hit mom and pop companies yet.

As you can see above and in the chart below, showing job growth by size of firm, the effects of the credit crunch have been concentrated in large companies, which get their working capital from the commercial paper market–the eye of the hurricane for frightened investors. Big companies have been shrinking payroll in recent months. Small companies have continued to grow.

This is in stark contrast to the last recession, in 2001, when firms of all sizes reduced headcount. The problem then was a shutdown in bank loans to businesses. That has not happened this time. Without a drop in small business hiring there cannot be a recession. That’s why I believe we will not even see one quarter of negative GDP growth this year.

JR