KEY DATA: ADP: +204,000; Construction: +27,000/ HWOL: -69,300
IN A NUTSHELL: â€œBusinesses are hiring solidly and they are looking for even more workers.â€â€
WHAT IT MEANS: The latest Fed meeting will end soon but before we get the statement, there are some data to discuss. Since they have to do with one of the Fedâ€™s major concerns, the labor market, it is likely they will be a part of the discussion. Since this is the week of Employment Friday, Wednesday is when we get a snapshot of what private sector hiring may have been. According to ADP, firms were out adding workers at a very solid, if not strong pace in April. The gains were spread fairly evenly across the different sizes of firms, though companies with 50 to 499 workers were the most active. Looking at the specific industries, the need for construction workers remains robust, while health care employees are also in strong demand. The only sector where jobs declined was information services.
The number of want ads posted online faded in April. The Conference Boardâ€™s Help Wanted OnLine Index fell, but it has been bouncing around quite a bit lately. That said, the level of want ads is still high enough that we should see solid hiring going forward. There were declines in every region, though the greatest weakness was the Northeast, New York in particular. As for occupations, the demand for computer and mathematics experts continues to soar, while sales people are no longer needed as much. That makes sense since the Internet is not a person-to-person sales vehicle.
MARKETS AND FED POLICY IMPLICATIONS: While the labor market data are important, today is all about the FOMC meeting and the statement that is to be released. The best guess is that the Fed will leave rates alone. Actually, it would be a surprise if anything else were done. The continued strength in hiring has to provide support for the membersâ€™ belief that they can continue to raise interest rates without materially affecting the economy. So what we need to watch is the statement and how strong a signal it sends that the next tightening is coming. Most economists, including myself, expect a rate hike at the June 12-13 meeting. If Fridayâ€™s jobs report is solid and wage gains continue to accelerate, anything but a hike then would be a shock. In June, we also get the Fed membersâ€™ forecasts, which could point to four rather than three increases this year and I think an increase in what may be the terminal rate for this cycle. That would point to four increases, next year as well, which is where I stand.