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With the April non-farm payroll report coming out Friday morning, the market's focus remains on the labor market. And we got a less-than-reassuring glimpse of the jobs situation through the weaker-than-expected report this morning from the payroll processor, Automatic Data Processing (ADP).

ADP reported that 179,000 private sector jobs were created in April, which was short of expectations in the 200,000 vicinity. This is also below current expectations of private sector jobs in the Friday's non-farm payroll report.

ADP's position as the nation's largest private-sector payroll processor provides it an excellent vantage point from which to read changes in the nation's labor market. The ADP report did not do a good job of foretelling the government jobs reports in the winter months, but has been right on the money in the last two months. The payroll processor reported jobs gains of 217,000 and 207,000 in February and March, which were subsequently confirmed by private-sector jobs of 222,000 and 230,000 in the government's report.

Given ADP's recent track record, stocks will be justified in feeling subdued about the Friday report. Today's number, while not materially away from market expectations, is nevertheless the weakest ADP report of the year. It is consistent with the soft first-quarter GDP reead and the recent negative turn in the weekly Jobless Claims data. A materially soft number on Friday, something under 100,000 for private sector jobs, will be a major setback for the recent stock market momentum.

Notwithstanding a couple of uplifting M&A announcements, there is not much reassuring for stocks on earnings front either. We got a top- and bottom-line beat from Time Warner (TWX), but cereal giant Kellogg (K) came short of expectations due to a rise in input costs. Also missing expectations were Las Vegas Sands (LVS) and Devon Energy (DVN). In a notable deal in the tech world, Applied Materials (AMAT) is acquiring fellow chip-equipment maker Varian Semiconductor (VSEA) for $5 billion in cash.

The mixed earnings reports aside, the focus will remain on ADP's subpar jobs report. Today's report is another reminder that the U.S. economy is still not producing enough jobs to make a major dent in the unemployed rolls. It will be very difficult to accelerate the economy's growth momentum in the absence of a credible labor market turnaround.
 
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