7-8-25: Which is Right? The Downbeat ADP Jobs Report or Friday’s Bullish Report?

by Louis Navellier

July 8, 2025

As usual, the monthly ADP jobs report and the Labor Department payroll report for June differed widely:

First, ADP reported on Wednesday that 33,000 private payroll jobs were lost in June. That came as a huge disappointment, since economists were expecting 98,000 net new jobs last month. (May private payrolls were also revised lower to 29,000, down from 37,000 previously reported.) A decline of 66,000 service jobs in June was the primary reason for the decline in private payroll jobs. One positive in the ADP report was that goods-producing jobs rose by 32,000, signaling that on-shoring efforts are creating jobs in energy (8,000), construction (9,000) and manufacturing (15,000 jobs). The West, Midwest and Northeast all lost jobs, while the South created 13,000 net new jobs. Overall, this July 2^nd ADP report represented the first decline in over two years and signaled that the Fed might want to cut key interest rates sooner than later!

Then, on Thursday, the Labor Department announced that 147,000 new payroll jobs were created in June, a number substantially higher than the economists’ expectation of 106,000 new payroll jobs. The previous (May and April) reports were also revised up by a cumulative 16,000. The biggest surprise was that the unemployment rate declined to 4.1% in June from 4.3% in May. In the past 12 months, average hourly earnings have risen 3.7%, beating inflation. Despite this better-than-expected payroll report, I suspect the Fed may still cut rates in late July if the inflation news continues to come out below expectations.

Which job report is correct? Both, one or the other, or neither?

As I’ve written here before, I tend to side with the ADP report, as they have real-time access to private payrolls. Also, ADP does not cover government jobs. The Labor Department reported that government jobs surged by 73,000 in June, even though the federal government lost 7,000 jobs. That sounds fishy until you realize that there was an 80,000 job gain (over half the total) in state and local government jobs.

In other news, the Institute of Supply Management (ISM) on Tuesday announced that its manufacturing Purchasing Managers’ Index (PMI) rose to 49 in June, up from 48.5 in May, the fourth straight month the ISM manufacturing index has been below 50, which signals a contraction. One positive sign is that the production component rose to 50.3 in June, up from 45.4 in May, but the other components – the new orders index, backlog and employment components – all declined in June, compared to May. Nine of the 15 manufacturing industries ISM surveyed reported expanding in June, which was encouraging.

On Thursday, ISM reported its non-manufacturing (service) index rose to 50.8 in June, up from 49.9 in May, while the business activity component rose to 54.2 in June, up sharply from 50 in May. New orders rose to 51.3 in June, compared with just 46.4 in May, and 10 of the 16 service industries ISM surveyed reported an expansion in June, so the service sector is expected to lead overall GDP growth.

Confidence is Returning – Despite the Fed’s Procrastination and Trump’s Critics

Looking forward, the previous uncertainty about the stock market is receding fast. Not only is the S&P 500 forecasted to post another round of double-digit earnings growth (on a capitalization-weighted basis), but the Fed is also expected to cut key interest rates in the upcoming months, giving the market a turbo boost.

Fed Chair Jerome Powell finally admitted last Tuesday, during a European Central Bank (ECB) forum in Portugal, that the Fed would have cut key interest rates this year had President Trump not proposed tariffs. Specifically, Powell said, “In effect, we went on hold when we saw the size of the tariffs, and essentially all inflation forecasts for the U.S. went up materially.” President Trump cannot fire the Chairman, but he has succeeded in making Powell a lame duck, as other Federal Open Market Committee (FOMC) members have been speaking with more authority than the Chairman, with some hinting at a rate cut in late July.

When Powell was asked if July would be too soon for markets to expect a Fed rate cut, the Fed Chair said he “really can’t say” and that “it’s going to depend on the data.” However, if Powell is referring to the inflation data, his last statement is a big deal, since the Fed may be forced to resume rate cuts following so much favorable inflation data, since the inflation increase that Powell was anticipating never materialized.

At the ECB forum in Portugal, Alan Taylor, the head of the Bank of England, called for a faster pace of easing and three additional key interest rate cuts this year. Due to a global collapse in interest rates, this will put downward pressure on Treasury yields, eventually forcing the Fed to cut key interest rates.

Speaking of tariffs, tomorrow, July 9^th, is the tariff deadline for many countries, so it will be interesting to see how many of them will reduce their reciprocal tariffs to get a better trade deal with the U.S. I remain in the camp that when all the dust settles, there will be freer trade with lower tariffs, since most countries cannot fight the U.S. For example, Canada rescinded its Digital Services Tax to avoid any delay in setting tariffs with the U.S., so President Trump abruptly ended all negotiations over that Tax. In effect, Canada was forced to cancel that tax to continue negotiations, which are now scheduled to wrap up by July 27^th.

Effective July 1^st, the tariff on British vehicles is just 10% (for a 100,000 annual quota), down from the 25% rate the Trump Administration had proposed. A 25% tariff would disrupt the flow of imported vehicles, so at least for British vehicles, the ports are expected to get busier. The same thing is expected to happen to vehicles from Germany, Japan and South Korea as trade deals are finalized. (I am grateful that Porsche did not impose any special tariff on a car that I ordered earlier, as it arrived last week. However, most Porsche shipments, other than custom orders, are on hold until the EU finalizes tariffs on vehicles).

The other interesting automotive news is that Stellantis may have to pay a 2.5 billion euro fine (almost $3 billion) in the next 2-3 years because it failed to meet European emission standards. Although the European Parliament has granted automakers more time to comply with their stricter emission standards, Stellantis cannot compete with the cheap Chinese EVs that are flooding the European Union (EU), so the company’s only alternative is for Stellantis to curtail making internal combustion engines for Europe.

Obviously, the EU did not intend to put big European automakers out of business, so it will be interesting to see if Italian Prime Minister, Giorgia Meloni, intervenes to protect legendary Italian brands like Abarth, Alfa Romeo, Fiat, Lancia and Maserati. Stellantis also makes French brands Citroen, DS Automobiles and Peugeot, so it will be interesting to see if French President Emmanual Macron also intervenes. Clearly, the European Parliament did not anticipate that China would dominate the market for low-priced EVs.

China is America’s biggest trade rival, and they have proven, along with the EU, to be the toughest tariff negotiators, but China needs to fuel its export market to survive. China’s National Bureau of Statistics announced its purchasing managers index (PMI) rose to 49.7 in June, up from 49.5 in May, the third month in a row the PMI has been below 50, which signals a contraction.

One of the green shoots in China’s PMI report was new export orders rose to 47.7 in June and is now significantly higher than the April low. Although the PMI readings are signaling a contraction, as trade with the U.S. and the rest of the world improves, China’s PMI should improve. In the meantime, China’s manufacturing sector continues to sputter as deflationary forces continue to reduce profits and output.

Meanwhile, U.S. exports continue to rise as the Trump Administration demands other countries buy U.S. agricultural and energy products in exchange for more favorable trade deals. As the trade deficit shrinks, it naturally boosts GDP growth. I expect that after the manufacturing sector perks up due to all the onshoring underway the U.S. will briefly hit 5% annual GDP growth. Since a significant proportion of this GDP growth will be tied to exports, I do not expect resurging GDP growth will be inflationary.

It is a good time to be bullish on America. We have an economic cheerleader in the White House. Treasury Secretary Scott Bessent has been a calming influence and has helped to better manage Treasury auctions, reassure Wall Street and boost investor confidence. I suspect, as interest rates steadily decline and the Fed finally does the right thing, the stock market should get a “turbo boost” in the upcoming months.

Over $10 trillion in onshoring is happening in America, led by AI and data centers. Additionally, the fact that GM is diverting manufacturing back to America from Mexico is encouraging. European, Japanese and South Korean auto companies are also expected to boost their American manufacturing.

What Could Go Wrong?

Now that “economic nirvana” is fast approaching, you may wonder (as I often do), “What could go wrong?” Well, the Trump Administration still has to end the war between Russian and Ukraine as well as strive for a more permanent peace in the Middle East. Iran remains defiant, but Iran has been dealt a severe setback in its nuclear ambitions by both Israel and the U.S. The primary reason Iran’s energy infrastructure was not targeted is that the Trump Administration is not trying to hurt Iran economically.

Much of the negative media is emanating from outside of America, especially from Britain and China, as well as from Trump’s domestic opposition. However, prosperity cures a lot of problems. We still need to accomplish a “peace dividend,” like Bill Clinton achieved, which would be wonderful in the upcoming years. In the meantime, the global interest rate collapse has commenced, and the Fed should be following market rates lower in the upcoming months, so I want you to feel good about the stock market, the surging tax revenue from tariffs, the on-shoring of factories in America and the fact that the Fed will finally join the party and help provide a “turbo boost,” pushing the U.S. economy to grow at 4% to 5% annual GDP rates!

The other thing that could go wrong is normal summer seasonality. August is a month I dread every year, since it is seasonally weak as Europe and many Wall Street folks like to go on extended vacations in August. However, if the Fed cuts key interest rates at its Federal Open Market Committee (FOMC) meeting on July 29-30, then the stock market could surge. The bottom line is that there will be some cross currents in August, but I remain bullish on overall U.S. GDP growth and a strong earnings environment.

As for what could go wrong, the media is making a big deal about how the U.S. dollar has declined over 10% this year vs. other major currencies. I don’t worry about that because President Trump has purposely weakened the U.S. dollar, since a weaker dollar makes U.S. exports cheaper and more competitive.

Second, when all the dust settles and the reciprocal tariffs are finalized, I suspect the U.S. dollar will get its “mojo” back. Even with four rate cuts, we will have higher rates than Britain, China, the EU, Japan and other major countries. Ironically, the ultimate impact of the Trump tariffs is that trade barriers could fall, freer trade could be the net result, so the big fears over tariffs and the U.S. dollar are largely unwarranted.

I am also getting questions about how the soaring U.S. debt could cause interest rates to rise. I have a very simple answer. When a tax cut is passed, it puts more money into our bank accounts, which in turn allows banks to buy more Treasury securities, so a higher deficit does not raise rates. The key for government policy makers is for the velocity of money, how fast money changes hands, to rise. No one knows what tax rate results in optimum rates of monetary velocity, which is why Congress tinkers so much with tax rates.

The media like to predict that the federal budget deficits will cause interest rates to soar and effectively sink America. They cite any number of Wall Street critics, including Jeff Gundlach, but bear in mind that he is a bond manager, so it’s in his interest to push bearish views on the stock market or a budget deficit.

I prefer to listen to Treasury Secretary Scott Bessent, who knows what he is doing, which is why the bid-to-cover ratios at the Treasury auctions have gone well and yields have fallen, not risen. Investors need to decide whom to trust and follow. If you want to be manically depressed, then follow the bond traders!

The breadth and power of the overall stock market has improved considerably in the past month, especially during the annual Russell index realignment. This has helped propel some of our stocks higher!  July is a seasonally strong month, and we have another exciting earnings announcement season to look forward to!

Stocks have been spectacular ever since President Trump said on Truth Social, on April 9^th, the day the recovery began, “THIS IS A GREAT TIME TO BUY!!!” Interestingly, President Trump’s nemesis, namely Fed Chairman Jerome Powell, has been saying the opposite, being a voice of relentless “caution.” In the end, I would bet more on the President’s cheer-leading than the Fed chair’s endless procrastination.

Navellier & Associates: do not own General Motors (GM), or Stellantis (STLA). Louis Navellier does not own General Motors (GM), or Stellantis (STLA) personally.