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Private payrolls rose above expectations in February, according to the latest ADP National Employment Report. Payrolls increased by 183,000 last month vs. 209,000 in January, revised down from 291,000. February payrolls added 13,000 more jobs than expected.

Key Takeaways

• Private payrolls came in at 183,000 vs. 170,000 expected, indicating ongoing labor market strength.
• January payrolls saw a significant downward reduction of 82,000.
• The precious metals markets are still being buoyed by the response to a surprise rate cut introduced on Tuesday.

The ADP report comes ahead of the government’s own employment report, which will be released on Friday. While there are often discrepancies between the two reports, early indications point to ongoing strength in the labor market with low unemployment and consistently robust hiring, despite the downward revision in January.

The ADP report indicates that large companies led the hiring drive in February with 133,000 new positions, followed by 26,000 for midsize businesses and 24,000 for small businesses. The services sector added 172,000 jobs, and the goods-producing sector added 11,000. In services, the industry with the most amount of new positions was education and health with 46,000, followed by leisure and hospitality with 44,000. Professional and business services added 38,000, with 31,000 new jobs in trade, transportation and utilities. Financial activities added 9,000, and information lost -2,000. Other services added 7,000.

"COVID-19 will need to break through the job market firewall if it is to do significant damage to the economy. The firewall has some cracks, but judging by the February employment gain it should be strong enough to weather most scenarios.” - Zandi on ADP https://t.co/S7Lvqz0dBn pic.twitter.com/rUnU74SJem

— Sam Ro (@SamRo) March 4, 2020

Among the goods-producing industries, construction was the only major growth component with 18,000 new jobs. This growth was partially offset by a -4,000 drop in the number of manufacturing positions, and a -3,000 drop in mining and natural resources. Manufacturing has seen significantly reduced hiring and activity throughout the ongoing trade war with China, and the recent coronavirus outbreak could impact supply chains, further contracting the manufacturing industry. The virus may also have a negative impact on leisure, travel, and other industries, and there are concerns that the 11-year period of economic expansion underway in the US could be in danger due to the outbreak.

Coronavirus Impact on US Economy

The upbeat labor market news released on Wednesday comes amid renewed fears surrounding the coronavirus outbreak. The US Federal Reserve introduced an emergency interest rate cut from 1.25% to 1% overnight on Tuesday to offset recessionary pressure resulting from the outbreak and its affect on US supply chains. However, the labor market is well-positioned to resist recessionary pressure for the time being, with solid rates of hiring and low unemployment.

“COVID-19 will need to break through the job market firewall if it is to do significant damage to the economy," said Mark Zandi, chief economist of Moody’s Analytics. "The firewall has some cracks, but judging by the February employment gain it should be strong enough to weather most scenarios.”

The virus is expected to drag on US GDP for the first half of 2020, resulting in approximately 1.0% growth. 

Market Reaction

Gold has seen very strong upward momentum today following a surprise interest rate cut introduced overnight by the Federal Reserve. Spot gold last traded at $1,639.00, up 2.93% with a high of $1,648.57/oz and a low of $1,628.17/oz

The cut is the first emergency rate cut to be implemented since the 2008 financial crisis. No other major central bank has followed suit with a rate cut so far. The cut has rekindled fears of a wider coronavirus impact on US industry and stocks, creating a stronger use case for gold as a safe haven asset.