INDICATOR: August Private Sector Jobs, NonManufacturing Activity, Layoff Notices, Jobless Claims

KEY DATA: ADP: 195,000; ISM (NonMan.): +2.7 points; Orders: +6.2 points; Employment: -3.1 points/ Layoffs: 53,480/ Claims: +1,000

IN A NUTSHELL: “While all eyes are on tomorrow’s employment report, today’s data reinforce the view that the economy continues to hold its own.”

WHAT IT MEANS: The job market will be the key factor if we are to escape a recession created by an extended trade war. Thus, any report that provides insight into what is happening will be analyzed closely. Today, the data pointed mostly to continued good gains in jobs. The ADP reading of August private sector employment gains came in well expectations. There was a surprisingly decent rise in manufacturing payrolls and less surprising surges in education and health and leisure and hospitality. Schools are going back earlier and it was a generally strong tourism/vacation year. Otherwise, there were really no major outliers.

The rest of the labor market data were mixed. Supporting the idea that the labor market has not faltered was the modest rise in jobless claims last week. The level remains near historic lows. On the other hand, the Challenger, Gray and Christmas report on layoff notices was pretty disturbing. The number was the highest for an August since 2009. We don’t want to see any employment data point compared to any 2009 number! For the first eight months of this year compared to last year, layoff notices are up over 36%. That is worrisome and might be an early sign of building problems.

While manufacturing may be the first casualty of the trade war, the remainder of the economy remains solid. The Institute for Supply Management’s NonManufacturing rose sharply in August as new orders surged. However, hiring looks like it is moderating.

MARKETS AND FED POLICY IMPLICATIONS: The labor market appears to be in decent shape, but how strong is unclear. The August employment report, that we get tomorrow, may tell us more. The consensus is for job gains to be in the 170,000 range, though I think that is high. I just don’t see manufacturers adding workers as the ADP report indicated. But I am not looking for a really weak number. I think something in the 150,000 range looks reasonable. What I am watching more carefully is the unemployment rate. It is still extraordinarily low, but it looks like the bottom has been reached and it is slowly inching up. I don’t rule out it ticking up to 3.8%. I have to laugh writing that there would be concern with a 3.8% rate since historically, it is really low. But direction matters and a further rise will be what is reported and what consumers see. We need household confidence to remain strong and rising unemployment rates, even if they are from a low level, don’t create warm and fuzzy feelings in workers. As for the markets, it is still all about the trade war and anytime investors hear that there might be an armistice, they celebrate. But after the celebration, we usually get a hangover driven by the reality that the war is not over and that is likely to be the case once again. And that means investors should discount the daily wild fluctuations. Otherwise, we may see more jobs in the health care sector as people get their ulcers treated.

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