KEY DATA: ADP: +178,000; Manufacturing: -4,000/ HWOL: -157,700

IN A NUTSHELL: “Job growth is really solid, even as firms give up advertising for workers they cannot find.”

WHAT IT MEANS: It’s Employment Friday week, which means we get the estimate of private sector job gains by ADP. The employment services firm is predicting that payroll increases were pretty solid in July. Strong hiring by mid-sized firms, those with 50 to 500 employees, led the way. But both the smallest and largest companies added workers at a decent pace. Looking at the sectors, it is nice that energy is adding to not subtracting from job growth. There were strong increases in professional and business services, education and health care. On the other hand, manufacturers cut workers while the construction boom may be slowing as builders added only a modest number of new employees.

While ADP is telling us that firms are hiring, the Conference Board is indicating they are cutting back sharply on their advertising. The number of help wanted ads posted online fell sharply in July. The level peaked at the end of 2015 and has been on a fairly steady downward trend since. Just in the past year, there was a nearly 10% drop. And the fall off was widespread. Declines were seen in nineteen of the twenty largest states and only five states showed increases. Similarly, nineteen of the twenty largest metro areas showed reductions in advertising activity and only four of the top fifty-two areas were up. Finally, every one of the ten occupational categories posted declines. In other words, this is a nation-wide, economy-wide slowdown.

MARKETS AND FED POLICY IMPLICATIONS: If the ADP numbers are anywhere close, something that doesn’t happen all the time, we should get a pretty good employment report on Friday. That raises the following questions: First, if firms are hiring so strongly, why are they complaining they cannot find qualified workers? Are they only hiring unqualified workers? Second, if they are having so much trouble finding qualified workers, why are they cutting back on the search process? The labor market is a real conundrum. Job gains are solid and no matter which measure of unemployment/underemployment you use, conditions are tight. Meanwhile, wage increases are tepid. Something has to give. I don’t think we will get the strong increase that is forecasted (consensus is 180,000). I think it will be less than 150,000. But even my number is more than the labor force growth and should lead to a decline in the unemployment rate. And it should put even more pressure on wages. Until that actually happens, though, I will join the Fed members in being confused about the true state of the labor market. As for investors, they want to see that wages are rising faster for an extended period, so even if we get a pop in labor costs on Friday, I don’t expect panic to set in.