Thursday, September 4, 2014

Claims/ADP numbers show steady growth

By Andrew Wilkinson

Labor market mixed according to ADP

The broad tone is bullish following the surprise move out of the ECB, with global equity markets continuing to rise. European bonds are in rally mode, while the yield on U.S. notes is static at 2.41%. Amid the noise of the ECB’s official announcement of lower rates and the delivery of an ABS purchase program over in Frankfurt, U.S. investors watched a couple of key labor market data points.

Initial jobless claims rose by 4,000 to 302,000 sticking close now to its pre-recession levels. Of course the upside from these lower readings is a series of strong nonfarm payroll readings. Only the January data point has thus far been below 200,000 – a level that shows the clear improvement in corporate confidence in the economy. That makes the latest ADP report released on Thursday all the more interesting. The 204,000 additional private sector jobs added in August was 16,000 lower than predicted by economists, while 6,000 fewer jobs were recorded in July after data was revised.

Chart – Manufacturing employment jumped, professional jobs weakened

Earlier in the week the ISM put out a strong report indicating a surge in new orders and production. The labor index eased a tad, yet remained firmly camped in expansion territory. Remember that this sector accounts for just one-eighth of the economy. However, we always look at this sector as being the engine of the economy. It creates a ripple effect across the landscape, and when manufacturing is humming, so too does the economy. The ADP report showed manufacturers added 22,900 jobs in August and the most since December 2012. That largely explains what the ISM report showed and is a positive sign.

However, the relative weakness in the report – we can’t overlook the fact that the report showed another reading above 200,000 – is to be found in trade and transport (+28.2k) and professional sectors (+50.7k). Each created the fewest amount of jobs since January. Investors will not have to wait too long to find out the official nonfarm payroll reading due in less than 24-hours. Despite the tighter labor market, wages are not careening out of control and appear to pose little if any threat to the Fed’s steady policy stance.

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