Small Business Employment Growth Is Now Negative (and What It Means)

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by Mike Shedlock

ADP data shows year-over-year payroll growth is negative 88,000 for small corporations sized 20-49. Trends are negative in all but very large corporations.

Data from ADP, chart by Mish

I created some new charts today from a download of the ADP National Employment Report for July.

Year-Over-Year Payroll Growth Key Points

  • Trends are very negative for small businesses.
  • Year-over-year payrolls are -88,000 for businesses with 20-49 employees.
  • For mid-sized corporations with 250-499 employees, the trend is slightly positive.
  • Large-corporation are the only group with strongly positive growth.

ADP Employment by Employer Size

The above charts explain many things.

BLS Sampling Weights

  • Corporations with 1-19 employees provide the second largest number of jobs.
  • Corporations with 20-49 employees provide nearly as many jobs as the largest corporations but that trend has now gone negative.
  • If the BLS is oversampling large corporations, and/or undersampling small corporations, then its monthly nonfarm payrolls will be hugely overstated.
  • This is a likely explanation for the large ongoing discrepancy between employment and jobs and the QCEW reports vs nonfarm payrolls.

Jobs Much Weaker than Expected, the Unemployment Rate Ticks Up

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Counting negative revisions, there was unexpected weakness across the board in June, especially private and manufacturing payrolls.

Data from the BLS, chart by Mish

On July 5, I commented Jobs Much Weaker than Expected, the Unemployment Rate Ticks Up

In addition to birth-death errors discussed below, undersampling of small businesses or oversampling large businesses can explain the above chart.

Expect the BLS to Revise Job Growth Down by 730,000 in 2023

Data from the BLS, chart by Mish

On July 26, I commented Expect the BLS to Revise Job Growth Down by 730,000 in 2023, More This Year

At the heart of these revisions is a horribly flawed birth-death model used by the BLS. My calculation closely matches an estimate by Bloomberg’s chief Economist.

In addition to the birth-death model, or perhaps explaining the birth-death model errors, small business employment is declining fast.

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“All Hell Breaks Loose” In the Next Few Months as Recession Bites

On July 25, I commented “All Hell Breaks Loose” In the Next Few Months as Recession Bites

Two of us are still adamant that a recession has started. The other is Danielle DiMartino Booth, in her best video yet. Please take a look.

The ADP report today provides further solid evidence of what’s happening.