WHAT IT MEANS:
- INDICATOR: December ADP Jobs, ISM NonManufacturing Activity, Help Wanted Online and November Trade Deficit
- KEY DATA: ADP Jobs: +257,000/ ISM (NonManufacturing): -0.6 point/ HWOL: -276,800/ Trade Deficit: down $2.2 billion
- IN A NUTSHELL: “The markets may be worrying about China but investors have little cause to be concerned about the U.S. economy.”
Tons of data were released today and they generally told a similar story: The U.S economy is just fine. Since on Friday we get the “all-important” jobs report, we should probably start with some estimates of what that number may look like. If ADP is anywhere close to the government’s number, the December jobs report be really good. The payroll services firm’s estimates of private sector growth have trended over time with the BLS data, but have been off quite a bit on a monthly basis. Regardless, the payroll gains were spread reasonably evenly across all sizes of companies. It was good to see large firms hiring again. This component had been pretty moribund during most of 2015. There was a surge in construction, but that may have been the result of the unseasonably warm weather.
Most people concentrate on manufacturing, but the real action is in the services sector, which is the biggest portion of the economy. Watching what happens there is critical to understanding the direction of the economy. The Institute for Supply Management’s December Non-Manufacturing Index declined to its lowest level in twenty months, but the details tell a different story. The measure of activity and production rose, as new orders, especially exports, grew faster and firms increased hiring. Firms got their products out the door faster and that drove down the index. In other words, the largest portion of the economy is doing just fine.
As for hiring, The Conference Board’s measure of help wanted online ads fell sharply in December. The data are volatile and smoothing them out, the trend is still up. Still, firms seem to have become a little more cautious as the number of new ads has pretty much stabilized.
On the trade front, the deficit shrank in November as both exports and imports fell. Interestingly, oil imports soared. Imports of cell phones fell by nearly 20%, but they have been bouncing around like crazy. On the export side, we sold less of most products except aircraft. Still, it looks like the trade deficit could narrow in the fourth quarter, boosting growth.
MARKETS AND FED POLICY IMPLICATIONS
: Today’s data may not have been uniformly strong, but they do point to a very solid economy. That seems to matter little to investors as worries about China and Korea and oil prices are overwhelming indications that the domestic economy is growing at a pace that will allow the unemployment rate to keep falling, and labor shortages to continue expanding. A year from now, the unemployment rate should be at or more likely below 4.5% and many parts of the country will be dealing with rates below 3%.
A year ago I expected that 2015 would be the year of “take this job and shove it”. I was a year early. Turnover rates in some industries are rising already and should be increasing across most industries and occupations by the summer. Firms will have to make decisions about how to deal with increasing demand and a shrinking employment pool. That is the issue on which most U.S. firms should focus, not a slowing China or low energy prices.
Joel L. Naroff
is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm. To read more of his blogs, CLICK HERE NOW.
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