Wednesday, December 2, 2015
The major indexes are on track to start today’s session essentially flat, with the strong ADP (ADP) jobs reading raising hopes of a similar outcome from the key government jobs report on Friday that would further firm up Fed expectations for an interest rate hike. A major speech by the Fed Chairwoman a little later will likely add to these expectations.
This morning’s jobs report from payroll processor ADP came in better than expected. This report, which serves as a preview for the all-important monthly non-farm payroll report from the U.S. government’s Bureau of Labor Statistics (BLS), showed gains of 217K in November relative to estimates of 183K and the prior month’s 196K gain (revised higher by 14K). Estimates for the Friday BLS report, which currently stand at 190K per Bloomberg.com for the ‘headline’ and 185K for the ADP-comparable private-sector jobs, leaves room for upward revisions to estimates ahead of the release.
Today’s jobs tally is the 3rd highest of the year – we got 231K in June and 220K in January 2015. As has been the pattern, the gains are concentrated in the service sector of the economy, with manufacturing continuing to struggle due to headwinds in the export markets and weakness in the energy space. In the aggregate, the services sector added 204K in November while goods-producing industries added only 13K. The construction industry had another very strong month, adding 16K positions during the month, while manufacturing rebounded by adding 6K jobs in November after two months of losses.
The manufacturing gain largely reflected gains in the auto sector, as the broader factor space remains under pressure as we saw with Tuesday’s November ISM survey. The reality of the manufacturing sector is that weak demand abroad and problems in the Energy sector are clouding the outlook for U.S. manufacturers. In terms of business size, large businesses (500 or more employees) added 74K jobs, medium-sized businesses added 62K, while small businesses with fewer than 50 employees in total added 81K jobs.
The key angle from which this report needs to be read is the Fed angle, which has lately been indicating its readiness to announce the first rate hike at its next meeting in about two weeks’ time. The Chairwoman’s speech later today at the Economic Club of Washington will likely provide further confirmation that lift-off is on the way.
This outcome has thankfully become less worrisome for market participants, as they have started focusing on the likely slow pace of coming rate hikes. This mood should help stocks maintain their recent positive momentum in the coming days, which has historically been good for the market anyway.
Sheraz Mian
Director of Research
Note: In addition to this daily pre-open article about the market, economy, and the corporate earnings picture, Sheraz Mian also provides detailed earnings analysis in his weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz Mian publishes a new article, please click here.
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