Disappointing ADP Private Payrolls Data Drags Longer Term Yields Lower

Long term Treasury yields decline after disappointing private payrolls estimate

Treasury yields and swap rates ended the day 1-2 bps lower across a flattening curve after private payrolls grew by only 374,000 last month (+625k expected), perhaps an omen of a disappointing print in Friday’s more comprehensive jobs report. Major US equity indices were mixed, with technology stocks pushing the Nasdaq to a new record close (+0.3% on the day), while the S&P 500 was near unchanged and the DJIA lost 0.1%.

Private payrolls fall short of estimates, rising by only 374,000 in August

In July, private payrolls rose by a downwardly revised 326,000, and economists were expecting an additional 625,000 jobs to be added in August.  The resurgence of COVID-19 cases has inhibited the labor market’s recovery, with small businesses taking the brunt of it.  Small businesses accounted for only 86,000 of the jobs added last month, while mid-size and big companies added 149,000 and 138,000 positions, respectively.  The private payrolls estimate comes two days before the August jobs report, which is expected to show a 748,000 jump in nonfarm payrolls and a 5.2% unemployment rate.

ISM manufacturing index rises from 59.5 to 59.9 in August, beating expectations

Robust demand continued to drive manufacturing growth in August, with new orders and production both rising above 60.  Despite the growth, concerns about the delta variant led to labor and supply shortages, which has resulted in order backlogs rising to near all-time highs.  Timothy Fiore, chair of ISM’s Manufacturing Business Survey Committee, commented “Companies and suppliers continue to struggle at unprecedented levels to meet increasing demand.”