KEY DATA: ADP: +190,000/ HWOL: +34,200/ Productivity: +3.3%; Unit Labor Costs: -1.4%
IN A NUTSHELL: “Businesses are still hiring, but it is not clear if Friday’s jobs report will give the Fed either an “all-clear” or a “let’s go slow” signal.”
WHAT IT MEANS: Yesterday, I commented that I hoped the jobs report would be strong enough that the Fed would have all the cover it needed to start raising rates. The one thing I didn’t want was a mezza mezza report that left everyone in Neverland. Well, if you look at today’s employment related data, it is likely Friday’s employment report could be not too hot or not too cold, which would make it not just right. ADP’s monthly estimate of private sector August job gains was a little less than expected. It points to a decent, but not great report. Ugh! Construction firms ramped up but manufacturers added positions at a more moderate pace. Looking across company size, there was decent gain in small and mid-size companies but large firms didn’t hold up their end of the bargain. The 500,000 to 1,000,000 employee group continues to disappoint. It is the only one of the major size divisions that hasn’t regained all the jobs lost to the Great Recession. I guess that is not the sweet spot to be in, but I don’t know why.
Looking forward, the Conference Board reported a decent but not great rise in the number of online help wanted ads. After cratering in June, there has been a steady rebound, but online ads are still below the May total. Taken together, the ADP and Conference Board’s reports show an economy that is adding jobs at a pace similar to what we have seen for most of this year.
Business productivity soared in the second quarter and labor costs declined sharply. The huge upward revision to second quarter GDP drove the improvement from the initial estimates, which showed rising labor costs. But these data are very volatile and looking at the change from second quarter 2014, productivity remains weak while labor costs are rising.
MARKETS AND FED POLICY IMPLICATIONS: Today’s reports really didn’t provide either Fed members or analysts with any reason to change their thinking on a September rate hike. Friday will come soon enough but right now, it doesn’t look like Fridays jobs numbers will be a game-changer. The numbers may have to be viewed with some caution, as the late Labor Day weekend could influence the seasonal adjustments. Investors may have to wander in the wasteland created by Fed bickering and dithering. The members are struggling with the communication process so I have a suggestion: Make the change in October when there is no press conference and no chance of further confusing everyone. Just kidding – I think. As for the equity markets, was anyone aware of how far the Shanghai index rose? It was up by over 130% in nine months. Even with the recent collapse in prices, it is still up 40% over the year. Should we be worried about a market that has posted a 40% gain in a year or should we have been screaming there was a bubble that had to burst when prices skyrocketed? I like to talk about efficient markets being irrational. That is a case in point. Keep that in mind as you watch your investments bounce around like yo-yos.