• INDICATOR: February Private Sector Jobs and Help Wanted OnLine
• KEY DATA: ADP: +298,000; Construction: 66,000/ HWOL: -360,2000
• IN A NUTSHELL: “If job gains are really heating up this much, the Fed might find itself behind the curve and having to catch up.”

WHAT IT MEANS: A strong employment number on Friday could cement a Fed rate hike next Wednesday and it looks like that could happen. ADP’s estimate of February private sector job gains was off the charts, or at least well above anyone’s expectations. The rise was led by a surge in construction jobs that was the second largest since the report was first released fifteen years ago. The only time there was a greater increase was at the peak of the home construction boom and we know that is not happening right now. The incredibly warm February weather across much of the nation may have played a major role in this outsized estimate. There was also a huge rise in manufacturing payrolls. That doesn’t seem to be weather driven, but the gain was the third highest in this measure’s history. Why the sudden surge in hiring, especially given the shortage of workers, is unclear. It raises questions about whether this is the start of a greater hiring trend or just a seasonal adjustment anomaly. Regardless, it is really nice to see.

Another reason that I am cautious about the ADP report was the large decline in the number of online ads, as reported by the Conference Board. The level was the lowest in almost five years and every major state reported a drop. There are a number of divergent reasons for the nearly steady decline that has been going on for fifteen months. First, labor demand may simply be slowing, as the economy hasn’t grown particularly robustly. The second is that firms are recognizing that in this labor shortage environment, they cannot fill a lot of the openings so they are cutting back on their advertising. Actually, a combination of the two could be occurring. That would argue for slow job gains. Alternatively, firms may actually be finding workers all those workers they are saying they cannot find and filling the openings. That would argue for strong job increases. We may not know for a few months which explanation reflects reality.

The Labor Department released revised productivity data for the final quarter of 2016 and it was depressing. Productivity increased in 2016 by the slowest pace since 2011. It is hard to grow rapidly, especially with businesses having so much trouble finding “qualified” workers, if firms cannot get a lot more out of current workers. Indeed, if we do get a surge in payrolls this quarter, as the other data imply, productivity will likely start of the year on a down note.

MARKETS AND FED POLICY IMPLICATIONS: Friday we will get the February payroll and unemployment government data and they should be good. Every once in a while, ADP and the Labor Department differ significantly in their estimates of private job gains, so it is unclear how big a number we will get. But if the employment increase exceeds 200,000 and wages rise solidly, as expected, a Fed rate hike should be assumed. I never say “done deal” when it comes to the Fed, but a strong report would get us pretty close to one. And it would reinforce the warning that I have been making that rates could rise faster and go higher than the markets currently anticipate.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.