ADP employment report shows worse than expected job losses in September

The private sector cut 254,000 jobs in September, according to data in the ADP National Employment Report. The August figure was revised to 277,000 jobs lost, down from the initial estimate of 298,000.

Economists surveyed by Bloomberg News had expected private employers to cut 200,000 jobs in September.

ADP noted that the 254,000 private payroll cutback was the smallest since July 2008. Nevertheless, "employment, which usually trails overall economic activity, is likely to decline for at least several more months, with losses continuing to diminish," ADP said.

The job loss totals in September by business size were 61,000 (large), 93,000 (medium), and 100,000 (small).

The service sector, a strong point during the recent economic expansion, lost 103,000 jobs. Manufacturing lost 74,000 jobs. The construction sector lost 73,000, its 32nd consecutive monthly decline, and brought total construction jobs lost since the January 2007 peak to 1.632 million.

Investors should monitor the jobs report because job creation is positively correlated with corporate revenue and earning gains. And as corporate earnings go, so goes the U.S. stock market.

Job creation is the key to consumption, and consumption helps drive U.S. GDP. However, given a decade of over-consumption and stagnant incomes in many job classifications, few economists expect consumption patterns to return to the home equity-driven years of the housing bubble. Nevertheless, many economists do expect both consumer spending and business investment to trend slightly higher beginning in the second half of 2009.

Analysis: To be sure, a disappointing private sector employment report for September. Still, the optimist would see the continuing downtrend in job layoffs. Even so, investors should note the September total is a far cry from the 150,000 to 200,000 jobs the U.S. economy needs to add every month in order to lower unemployment.

Investors also should keep in mind that the more telling statistic, containing both private and public sector job data, is the U.S. Labor Department's monthly payroll data; the September data will be released Friday, October 2 at 8:30 a.m. EDT. That report is expected to show a 170,000-job loss in September, following a 216,000 job loss in August, according to a Bloomberg News survey of economists.

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