- INDICATOR: January Nonmanufacturing Activity, Private Sector Jobs and Help Wanted Online
- KEY DATA: ISM (Nonmanufacturing): -2.3 points; Orders: -2.4 points; Hiring: -4.2 points/ ADP Jobs: +205,000/ Online Ads: +13,500
- IN A NUTSHELL: “The new year hasn’t started off with a bang, but more like a whimper.”
WHAT IT MEANS:
The first data for 2016 are trickling in and while the economy continues to expand, there are no signs it is accelerating. The Institute for Supply Management’s January reading on the nonmanufacturing portion of the economy was disappointing. Business activity decelerated sharply as orders grew at a slower pace than in December. As a consequence, hiring activity moderated as well. With order books filling slowly, it doesn’t look like we are in for any major acceleration in growth in this, the largest portion of the economy, anytime soon. The only unknown in this report is how much the blizzard hurt activity. As a consequence, we need to be careful in getting too down about the weakness. That said, on Monday, the January Supply Managers’ manufacturing index was released and while it was a little better than in December, it too pointed to sluggish growth.
This being the first week of the month, it means that Friday is Employment Friday. ADP released its estimate of January private sector job growth and it was better than expected. Payroll gains were solid and spread across companies of all sizes and in almost every industry. The only weak link appears to be manufacturing, which we also saw in the Supply Managers’ report. Still, after huge gains at the end of last year, expectations are that the January numbers would be a lot lower. This report suggest hiring should be less but decent nevertheless.
Speaking of the labor market, The Conference Board’s Help Wanted Online measure rose minimally in December. Labor demand picked up strongly in the Midwest and West, more moderately in the South, but declined in the Northeast. Again, it is not clear if weather played a role in the drop.
January motor vehicle sales were released this week and they were up despite the blizzard. The economy may be slowing, but people are once again in love with new vehicles.
MARKETS AND FED POLICY IMPLICATIONS:
The latest economic news hasn’t been great and investors are getting whipsawed. We are seeing more questions about Chinese and even Japanese growth. So, where are we? As long as jobs are being created and incomes are rising, households will keep spending. And that is likely to be the case. Businesses may be turning cautious, but if they are linked into the domestic economy, they should continue to hire and invest, at least if they are not part of the energy complex. Basically, there are more uncertainties out there and that is likely to cause the Fed to be cautious in their drive to normalize. Both the January and February jobs report will be released before the next FOMC meeting, so let’s wait a while before we conclude a rate hike in March is off the table. However, the probability of it occurring at that meeting has slipped.
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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