WASHINGTON (Reuters) – U.S. private employers hired far fewer workers than expected in July as companies exhausted loans to help with wages and new COVID-19 infections flared up across the country, supporting the view that the nascent economic recovery was faltering.
The ADP National Employment Report on Wednesday showed private payrolls increased by 167,000 jobs last month after jumping by 4.314 million in June. Economists polled by Reuters had forecast private payrolls would increase by 1.5 million in July.
Hiring weakened across the board last month. Payrolls for medium-sized businesses with 50 to 499 employees fell 25,000. The ADP report is jointly developed with Moody’s Analytics.
“Today’s data is a cautionary tale that the jobs market is not going to kick into higher gear until there is a vaccine,” said Mark Zandi, chief economist at Moody’s Analytics.
Zandi attributed the sharp step-down in private payrolls to the expiration of the U.S. government’s Paycheck Protection Program (PPP) and the resurgence in coronavirus cases.
The PPP was part of a historic fiscal package worth nearly $3 trillion that gave businesses loans that can be partially forgiven if used for employee pay. New cases of the respiratory illness have exploded, especially in the densely-populated South and West regions where authorities in hard-hit areas are closing businesses again and pausing reopenings.
California, Texas and Florida account for a third of the nation’s employment. The economy suffered its biggest blow since the Great Depression in the second quarter, with gross domestic product shrinking at its steepest pace in at least 73 years. It slipped into recession in February.
Stocks on Wall Street opened higher as Disney’s surprise quarterly profit and a slate of upbeat results from healthcare companies lifted sentiment. The dollar .DXY fell against a basket of currencies. U.S. Treasury prices were trading lower.
LABOR MARKET SLOWING
The ADP report was published ahead of the government’s more comprehensive employment report for July scheduled for release on Friday. While the ADP report has a poor track record forecasting the private payrolls component of the government’s employment report because of methodology differences, the decline in job growth last month was in line with a recent pick-up in new applications for state unemployment benefits.
A survey from the Institute for Supply Management on Monday showed a measure of factory employment contracted in July for the 12th straight month even as manufacturing activity accelerated to a 16-month high.
According to a Reuters survey of economists, the Labor Department’s closely followed employment report will likely show private employers hired 1.485 million workers in July. That would lead to a rise of 1.6 million in nonfarm payrolls, down sharply from the record 4.8 million jobs created in June.
It would leave employment about 13.1 million jobs below the pre-pandemic level. The unemployment rate is forecast to fall to 10.5% from 11.1% in June.
But there are some glimmers of hope for the struggling economy. In a separate report on Wednesday, the Commerce Department said the trade deficit narrowed 7.5% to $50.7 billion in June. Economists polled by Reuters had forecast the trade gap would shrink to $50.1 billion in June.
Exports rebounded by a record 9.4% to $158.3 billion. Goods exported surged by a historic 14.5% to $102.9, boosted by shipments of motor vehicles and parts, capital goods and industrial supplies, including crude oil.
That offset a 4.7% increase in imports to $208.9 billion. The rise in exports was the largest since March 2015. Goods imports rose 5.4% to $175.0 billion, lifted by imports of motor vehicles and parts, consumer and capital goods.
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