What Companies Will Be Affected By Continuing Job Losses?

ADP, the largest payroll processing firm in the U.S., has come out with its estimate of job losses in June for the private sector. It is not a pretty picture, with the economy shedding 473,000 more jobs in the month. This was far worse than the 394,000 consensus expectation.

On the silver-lining side, the May number was revised to a fall of 485,000 jobs from the initial estimate of 532,000. This moves the May ADP data somewhat closer to the BLS data (June due out tomorrow) of 345,000 jobs lost in May. Also, while the June ADP number is higher than expected, it is the smallest absolute number of job losses since September. I can’t say that I am shocked by the ADP number given that initial claims for unemployment insurance have consistently been running about 600,000.

The ADP and BLS numbers do not match up exactly, for starters, ADP only shows private sector jobs while the BLS numbers include government jobs as well. That should not make a huge difference this time around. While the Federal government probably added quite a few positions in June — mostly for the Census — State and Local governments are under severe financial stress (see http://www.zacks.com/stock/news/21644/State+Budgets+Are+Anti-Stimulus), and job losses there will offset any Federal gains.

On the other hand, even with the revision, there is still a big gap between the BLS and the ADP numbers. ADP provides a clue as to what the BLS will report tomorrow, but it is not always the best indicator out there. While the BLS numbers will continue to be the official ones, the ADP numbers do not have the Birth/Death adjustment that the BLS numbers have — an adjustment that has consistently been working to lower the job loss totals, and which I find very hard to take seriously.

Digging further into the details, the job losses were about equally split between the goods producing sectors which lost 250,000 jobs, including 146,000 in manufacturing and 97,000 in construction, and the service sector which lost 223,000 jobs. This is the 40th straight month that the country has lost manufacturing jobs. Of course, there were far fewer goods producing jobs to start with than service sector jobs, so on a percentage basis, it is manufacturing and construction that continue to be the hardest hit in the downturn.

Job losses were felt in all-sized firms as well. Large businesses (>500 employees) dropped 91,000 jobs, while medium sized (>50,<500) firm payrolls fell by 205,000 and small businesses employment fell by 177,000 in the month.

Increasing unemployment will mean less income which will keep retail sales weak, particularly of discretionary goods and services. A good example of this is travel, causing hotel companies like Starwood (HOT) and Marriott (MAR) to have much lower occupancy rates, especially in their more resort oriented destinations.

It also makes it much more difficult for people to pay down their existing debts, meaning that more credit card defaults are likely, which is obviously not good news for the likes of American Express (AXP) and Capital One (COF).

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