KEY DATA: ADP: 281,000; Small: 117,000; Medium: 115,000; Large: 49,000/Online Ad Demand: up 155,900
IN A NUTSHELL: “Hiring is strengthening and that, more than anything else, is pointing to much better growth ahead.”
WHAT IT MEANS: It’s the week of the employment report, which will come out tomorrow and that means we get the first attempt at estimating the number with the ADP report. The employment services company looks at private sector payroll numbers and came up with a huge increase in June. The details were quite positive. Firms of all size added lots of new workers. The big gains in small firms indicate that the expansion is quite broad based. That is confirmed with the industry data, where hiring was good in manufacturing, construction and all service-related firms.
Another report that points to a strengthening of the labor market was The Conference Board’s Help Wanted Online Survey, which showed that openings rose solidly in June. Every one of the occupational categories was up. Geographically, strong gains were posted in the Northeast, South and West. The only weakness was in the Midwest, where demand was essentially flat. Eighteen of the twenty metro areas also showed increases with only one down and one flat. There was a caution raised in the report. Over the year, demand for professional workers was down while ads for lower-wage workers rose.
MARKETS AND FED POLICY IMPLICATIONS: The ADP report has been somewhat underestimating the Bureau of Labor Statistics numbers recently so it is possible the June number makes up for that shortfall. But the widespread nature of the payroll gains in the ADP report implies that the consensus of about 215,000 may be too low. I have been in the 250,000 range so I will keep my estimate, but I have tended to be a bit aggressive. Nevertheless, I expect tomorrow’s report to be quite good and if the unemployment rate does decline, as the low unemployment claims point to, it would create a very positive buzz going into the July 4th weekend. Those thinking that the Fed will be on hold not only through this year but next year and into 2016 may have to rethink their forecasts as the unemployment rate will be closing in on full employment. Indeed, the ratio of unemployed to job openings is falling to a level that is indicating the emergence of labor shortages in some regions and metro areas. The markets and the Fed have not shown any inclination to believe that wage pressures could build anytime soon. That may be a mistake. But today we can conjecture: Tomorrow we get the numbers, so it is wise to wait and see.