We have two major market-moving events this morning, and both are positive for the market. As important as the favorable domestic labor market readings this morning are, the news out of the European Central Bank (ECB) is even more significant, even though mostly along expected lines.
The ECB left short-term interest rates unchanged. But the market's wasn't looking for a rate cut. What it was looking for instead was a credible enough ECB bond purchase program to bring down the temperatures in the Spanish and Italian government bond markets.
While a number of details are not yet clear at this early stage, it appears that Mario Draghi is delivering on his 'whatever it takes' pledge. With respect to the Fed, the expectation is that they will come out with a new easing program at next week's meeting despite today's positive jobs report from payroll processor Automatic Data Processing (ADP) and weekly Jobless Claims numbers.
The ADP report is showing better-than-expected private-sector jobs of 201K in August and the tally July was revised upwards to 173K from 163K. The consensus expectations was gains of 149K. The biggest increase came from smaller firms (firms with less than 50 employees), adding 99K jobs, while medium and large businesses added 102K and 86K jobs in July, respectively.
Service sector jobs increased by 185K in August, while good producing sectors added 16K. Importantly, the construction sector added jobs for the third straight month, adding 10K jobs in August.
The expectation for Friday's BLS report ahead of this morning's ADP report was for headline gains of around 125K. If the ADP report is painting as correct a picture of private sector jobs in August as it did in July, then we will get a positive surprise on Friday from the BLS.
But irrespective of how accurate or otherwise the ADP report is in gauging the health of the labor market in real time, the important takeaway may actually be that the labor market has stabilized after the persistent weakening trend of the Spring months.
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