KEY DATA: ISM: +2.2 points: Orders: +2.3 points; Employment: -2.9 points/ADP: +208,000/HWOL: +170,200

IN A NUTSHELL:   “The October lull was just temporary and it looks like the job market is getting better.”

WHAT IT MEANS:  Friday we get the “all important” November employment report but until then, we will be finding out from other sources how the economy did last month.  Right now, all signs are go.  It appears that the services sector pause in October was only to refresh, not depress.  The Institute for Supply Management’s Non-Manufacturing index rebounded sharply in November, led by a surge in new orders.  Similar to the ISM manufacturing report, export demand jumped, though service sector imports grew a little less rapidly.  Despite ramped up production, order books are filling more rapidly and that bodes well for future activity.  The only negative was employment.  But the index simply came down from a very high level to a high level so hiring is still solid.

I am still quite optimistic about Friday’s jobs numbers.  ADP estimates that November private sector job gains came in at a decent though nothing-great level.  Small businesses are hiring like crazy.  That is interesting as the Paychex/IHS Small Business Jobs Index fell in November, so I don’t know what to make of this.  There was some improvement in large firm hiring but that group needs to do more.  And more may be coming.  The Conference Board’s Help Wanted OnLine index jumped in November as the number of new ads surged.  Firms need more workers, but they don’t seem to be doing a good job filling the open positions.  That view was supported by the latest semi-annual survey by Dice Holdings, which indicated that “more U.S. companies are revving up hiring plans”.  Even if Friday’s report is not a huge one, next year is shaping up to be a great one for workers.  

MARKETS AND FED POLICY IMPLICATIONS:  Every day, we continue to see that economic conditions are not only good but they are getting better.  The labor market is tightening and orders are flowing in.  Meanwhile, businesses continue to hold the line on compensation.  Today’s revised productivity numbers indicate that there has been largely no gain in inflation-adjusted earnings over the past year.  That is good for earnings but bad for consumer spending.   Investors should appreciate today’s numbers as they point to a solid but hardly overheating labor market.  That implies the Fed may not be facing demands to raise rates anytime soon.  But the Fed members will be parsing Friday’s unemployment rate and the wages data.  Those are the key indicators and as long as wages remain reasonably well contained, the FOMC can dither.