KEY DATA: ADP: 241,000/Help Wanted Online: -79,200/Trade Deficit: $39 billion ($3.2 billion narrower)
IN A NUTSHELL: “A solid labor market coupled with a narrowing trade deficit points to continued strong growth ahead.”
WHAT IT MEANS: Employment Friday is this week and the first guess at the private sector number comes from ADP, which estimated that employers added workers solidly in December. That said, the government’s data and the ADP numbers sometimes diverge widely. For example, ADP estimated that private sector payrolls rose by 227,000 in November while the government put it at 314,000. But the 3-month trend has tended to be fairly close and that raises a question about Friday’s jobs report. For the fourth quarter, ADP puts total private sector job gains at 710,000. After two months, the government has it at 550,000, a difference of 160,000. Could December’s increase be below 200,000? Possibly, though I think it will be between 225,000 and 250,000. Companies of all sizes are adding jobs and that should mean continued solid payroll gains. I remain optimistic about the job market.
Helping drive the economy forward, regardless what investors might think, is a rapidly narrowing trade deficit. Exports are beginning to suffer from the weakness around the world, but that is being offset by declining petroleum imports. The drop in exports is not a major concern as most of the decline came from Boeing shipping were planes. That is likely just a timing issue. Vehicle shipments were off as well and that may reflect slower world growth. On the import side, the only category that posted a sharp gain was cell phones. Thanks Apple. Adjusting for prices, it looks like the trade deficit will be fairly stable. There have been concerns that trade would slow growth in the fourth quarter but right now that is not the case.
The Conference Board’s Help Wanted Online Index plunged in December after having soared in November. Actually, this one month up and one month down pattern seems to be a routine that is odd given the consistently strong payroll increases. These data are supposed to be seasonally adjusted, so I guess I will simply say that the decline in online want ads is a concern that should unwind in a month.
MARKETS AND FED POLICY IMPLICATIONS: The recent data have been disappointing but the ADP and trade numbers were better than expected. Indeed, today’s reports raise more questions than they answer. Friday is only two days away so we will have a better picture of the labor market soon enough. What investors will make of these reports is anyone’s guess. I don’t even think investors know what they are thinking. The markets are reacting emotionally so it’s best to simply step back and not make too much of the doings there. And don’t forget that Wall Street and Main Street have been delinked for a long time so making a judgment about the economy based on stock movements is silly. As for the Fed, the focus is still on wages but the issues in Europe and the continued low inflation rate are complicating things.