Automatic Data Processing, Inc. (ADP) Earnings Call Transcript & Summary

Greetings, and welcome to the ADP National Employment Report Media Conference Call. [Operator Instructions] As a reminder, this conference is being recorded on Wednesday, December 1, 2021. I would now like to turn the conference over to Joanna DiNizio. Please go ahead.

Good morning, and welcome to the November 2021 ADP National Employment Report Media Conference Call. With us is Nela Richardson, Chief Economist ADP. Nela will share her thoughts on the November finding, which is derived from ADP's actual data of those who are on the company's payroll and produced in collaboration with Moody's Analytics. And then she'll take as many of your questions as possible before our hard stop at 9:00 a.m. Nela, please go ahead.

Okay. Thank you, Joanna. Good morning, everybody. Well, as we saw in this month's report, the labor market posted a second month of solid gain. In November, private sector payrolls rose by 534,000 in on-net. That brings the 3-month average to 543,000. This is a small uptick from the 478,000 job pace in the first 9 months of the year, and we view that as positive. Job gains have eclipsed 15 million since the recovery began. So we're still about 5 million jobs short of where we were pre-pandemic. Job gains have been impressive now for 3 straight months and the Delta-induced summer slowdown. And there's good signs for gains to continue, among those our initial claims for employment insurance, which are back closer to historic flows. There's job openings that are principal, hovering currently around record highs. And the share of workers quitting can be regarded as a good signal. Generally, we see a higher quit rate when there are more principal job opportunities. And certainly, if you look at job openings, that's the case now. It's too early to tell the impact of Omicron on the labor market. But the risk will be driven by consumer behavior, how comfortable they are with the risk -- potential risk of a new variant, what those concerns will be. It will also depend on whether and how long borders are closed and also whether this new variant leads to any strains on supply. But those strains on supply currently don't seem to be affecting the goods market. We've seen, if you look at the sector breakdown, solid gains from goods producers, which added 110,000 jobs in November, nearly double the pace so far this year. And the risk providers continue to count for the majority of gains, picking up 424,000 jobs, and that's about in line with the average so far this year. So just looking a little bit deeper into that goods producing sector, confection payrolls remain strong, adding 15,000 jobs that matches last month's reading and is more than double the average case of growth through the first 9 months. Natural resources has been slower. Payrolls were up 7,000 in November, averaging 5,000 this year. We think that the long-term outlook for this sector is going to be limiting hiring in the near term. Turning to manufacturing. Payrolls were up, again, adding 50,000 jobs after averaging only 26,000 so far this year. So manufacturing is powering through those supply chain and labor supply issues. Even though we're seeing a slowdown in supply or deliveries that could impede production, hiring remains solid. Now it goes without saying that the standout of this recovery is the service sector, again, noting that services hiring rose 424,000 in November. Leisure and hospitality was the fastest-growing industry again, though its lead is narrowing from recent months. It added 136,000 in November, and that's actually below the near 200,000 job case in the first 10 months of the year. The massive restaurant and bar industry will continue to provide a significant tailwind as these businesses normalize. However, firms are still struggling to find workers in the sector. And the sector is also quite vulnerable if there is a resurgence of the pandemic. So we're watching that. Professional business services continued to provide steady increases. Gains totaled 110,000 in November. This is the strongest read since mid-2020. And there's been a composition shift in this sector. We're seeing more gains in administrative and support services, and that's likely a result of a renewed push in getting some workers back into the office by the end of the year. Gains in education and health care remained solid, though slower than earlier this year, costing about 70 -- excuse me, $55,000 in November, but lagging the $70,000 average fees. And then just a couple more industries to note. The recovery in trade has added 78,000 in November. So that's good news. E-commerce has been a boon to transportation and warehousing even as retailers and brick-and-mortar stores are still having to kind of deal with that feeling of market share from e-commerce. And then financial services, which were -- was the least impacted sector by the pandemic is averaging 12,000 over the last 9 months and pulled in 13,000 jobs in November. Again, when we look at firm size, growth in November was weighted heavily towards large companies. Firms with more than 1,000 workers were ahead of the path, adding 234,000 jobs. The average gain for large companies is now 286,000 over the last 3 months. That's compared to 119,000 in the first 8 months of the year. And we've seen a large firm outperformance be a pattern for the past 3 months. Midsized companies added 142,000 jobs, smaller companies added 115,000 jobs. But we did see some good news with firms less than 50 employees. They've rebounded nicely after facing some struggles in late in the summer, in large part to the Delta variant. Small companies though, in relation to the large company outperformance, we've seen they've been less well slip to compete on wages and benefits as labor shortages continue to limit hiring. So those are the numbers. Overall, a solid report with some good potential for seeing some continued gains in the last part of this year. And with that, I'll turn it back to Joanna for your questions.

[Operator Instructions] Our first question comes from [ Gregory Roth ] with MarketWatch.

Thanks for this call. I appreciate it. I was wondering if you could talk a little bit more about the 5 million job shortage and what your thought is on that? And I mean, I guess, everybody has their own theories about that. And I guess that number isn't in the report, like the total -- the job totals, right? I guess it would be nice to have those numbers. So if you could talk about it some more.

Sure. And thank you for your question. The 5 million job shortage is something that we know that we've seen a remarkable downshift in the unemployment rate you think in The Great Recession, the unemployment rate stayed above 8% for almost 3 years. And here, less than 2 years into the jobs recovery, we've seen a remarkable down shift. That being said, that rate doesn't include 5 million people who are still sidelined from the pandemic. And the reason, I think, are unique, they're varied, and that's why it's hard to generalize why people aren't going back to work. Some of the bottlenecks that we talked about this summer have repeated quite a bit. So those bottlenecks included expansive and generous unemployment benefits. Those have all faded away as of September. We talked about limitations in terms of schools being out of session and day care being harder and more expensive to find. Now those bottlenecks are still present. Schools have reopened and they're in-person. But as we've noted, they're not as predictable as they used to be before the pandemic. And also, there are still shortages in terms of bus drivers. We just put out a report this week talking about the bus driver shortage that's been well documented in media as well as there's been some concerns with childcare was about -- were down about 10% in terms of child care workers, so that's a meaningful restriction. Then there's concerns about the pandemic itself. Even if people are vaccinated, there might be people family members who are not or who are vulnerable and that's limited, I think, some participation in the jobs market. And then finally, we can't exclude the context of the remarkable stock market and home price growth that [Audio Gap] real money has been made in 401(k) plans. Stock prices continue to reach new highs. And that's given some higher income people options. We were already facing a large share of the boomer workforce retiring pre-pandemic. And now they're in a better position, frankly. Many of them to pull forward that retirement decision and retire early. So there's a whole host of reasons why 5 million people are not in the workforce right now. I also think that there is a sales mismatch between the jobs that are being -- that are attractive enough to lure people back from the jobs that are being offered. Many of them are still low pay service sector jobs. And so the mismatch in opportunities could also be hampering hiring.

[Operator Instructions] Our next question comes from [ Anna Quintop ] with CNN.

I have to ask you a crystal ball question because I think this report stay and the jobs report from the government on Friday is going to be overshadowed a little bit all the madness and worry about the new variants and whether it may or may not be like Delta and kind of put a bit of a pause on the recovery, both in the economy and the job market, which is obviously, something that you could know. But I was wondering how you're thinking about the occurrence of new variants and sort of the hurdles that the jobs recovery might encounter in the future. And I think this does link as well to the people who are already not in the labor market and how it might actually keep them out of it for even longer. I would love it if you could comment on that.

Sure. Well, we have -- in terms of the crystal ball, I've been joking that it's on back order because of the supply shortage. But we actually luckily or maybe not so luckily have a recent example of what happened when the variant gained increased COVID cases and that was this summer. We saw in a very real way, a slowdown in hiring as a result of the Delta variant and consumers actually pulled back. There were less -- fewer people going to restaurants, fewer people traveling and that had an impact on hiring, likely had an impact on fewer people deciding to come back into the labor market. But we also found out that things weren't as bad as initially reported in government statistics, hiring was revised by 235,000 in 2 months in late summer, so revised up, which was great needs to see. And so when it comes to the new variant, I think it's going to depend -- its impact will depend on a whole host of scenarios that right now is impossible to tell. One thing we know about the pandemic is to expect the unexpected. There's a large degree of uncertainty about the path of any variant. So it's hard to be decisive here. But what we can say is that in terms of the health conditions on the ground, we, as a country, are in a much better position than we were December of last year when the case counts were skyrocketing and the "poised" to go higher in January and many fewer people were vaccinated. Now, even young kids have access to the vaccine. So those vaccines -- some adults pursuing a third booster shot are a game-changer in terms of the jobs recovery. And even if there are risks and uncertainties caused by an unpredictable virus, I think the vaccines help us quite a bit, something that we didn't have to such a degree a year ago. So even though there is a lot of uncertainty, I think that the health conditions have helped retain the recovery even if it slows at the end of the year.

[Operator Instructions] There are no further questions at this time.

Thank you, everyone, for joining us this month. We look forward to having you back here for the next report, which will be released on January 5. The call is now concluded.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.