Preview: US PMI & ADP Employment

Wednesday is April Fool’s, and some might be forgiven to wish the last couple of months of trading were an elaborate prank. But the data coming out is still quite serious.

To begin with, this time around, we’re going to be paying very close attention to the ADP employment figures. These will give us some valuable insights into what might happen with the NFP on Friday.

ISM’s survey of Purchasing Managers comes next. This is also really relevant because it’s the first macro data to include the effect of COVID-19 on the US.

The information was gathered as lockdowns and other measures were beginning across America. So, this can give us a good understanding of how the economy is reacting.

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The Employment Situation

Last week, we had the first round of what’s expected to be several weeks of dismal unemployment figures.

Businesses laid off employees due to closures aimed at halting the spread of coronavirus. Job losses hit an all-time record for the week, and analysts expect the weekly jobless numbers on Thursday to be just as bad.

ADP considers the entire month, and the first three weeks of March showed employment figures in line.

This means that we could potentially have not as dramatic a result as last week’s unemployment results would suggest. There is a certain amount of lag between the impact of harsher business conditions and when employment gets affected.

What We Are Looking For

There is a distinct lack of consensus about what we might expect from the ADP figures. There is an agreement that the result will be negative, but the range is pretty broad.

A negative reading suggests there were more jobs lost than there were created during the month.

The range of forecasts for ADP Employment Change runs from -150K all the way up to -280K. But there seems to be a little consolidation around the -170K figure.

In any case, we can expect the market to react no matter what the result is, regardless of the consensus.

Anything below -200K is likely to be interpreted as more negative, but we might get a more positive reaction if the result is above -150K since that would be better than what most analysts predicted.

The State of the Economy

There is a similar lack of consensus around the ISM Manufacturing PMI. Most expect the figure to be far down in contraction territory, but by how much isn’t something economists agree on.

Results are not expected to be as bad as services since many manufacturing companies continued to work despite social distancing guidelines.

There is something of a consensus for ISM Manufacturing PMI to come in at 45.0, compared to 50.1 in the prior survey. It would be the first time the US fell into contraction since 2016.

Anything below 47.0 would harken back to the last recession, and likely would weigh on risk sentiment significantly more.

The Dollar

As central banks have injected unprecedented amounts of cash into the capital markets, liquidity has started to ease and the dollar has pulled off its more recent highs.

But worse data might not weaken the greenback so much, because the Fed has already pledged unlimited monetary support; there isn’t much more they can do to help the economy at this point.