Note: Mark Vickery will be writing this piece from January 8th through the 19th while I am way on work-related travel.
Stocks started today’s session on a positive note, with another strong labor market reading reconfirming the improved U.S. economic picture. The weak inflation data out of Europe is helping sentiment as well, as it is interpreted as increasing the odds of monetary stimulus in that market. Minutes of the last Fed meeting coming out later this afternoon could potentially move markets as well.
The ADP (ADP) read came in tad above estimates at 241K for December vs. estimates of about 235K, while the prior month’s tally was revised higher. The 19K positive revision to November total takes that month’s tally to 227K, still shy of that month’s 321K read from the government’s Bureau of Labor Statistics (BLS). This the 9th month running that the monthly tally on the ADP report has exceeded 200K.
The consensus expectation for Friday’s BLS report is for ‘headline’ gains of 245K, which includes government jobs that have been averaging in the 5K to 10K monthly level lately. As such, today’s ADP report wouldn’t have much bearing on current BLS estimates, though the two reports can divert in a big way from each other at times. This was particularly the case last month when the ADP report came shy of the BLS numbers in a big way and the gap didn’t close despite the positive revision to that number in today’s report.
Today’s ADP report showed broad-based gains: small businesses added 106K jobs, medium-sized businesses added 70K and large businesses added 66K. The goods-producing sector added 46K jobs in December, up from the 40K tally in November. The Construction industry added 23K jobs during the month compared to November’s 20K tally, while manufacturing’s 26K jobs for the month were meaningfully above the prior-month’s 16K tally. The service sector added 194K in December, up from November’s 187K, with professional and business services producing strong numbers.
In terms of market impact, this report reconfirms what we have known for some time — that the U.S. economic growth is looking up even as the outlook for the rest of the world is coming down. The growth picture beyond the U.S. borders isn’t looking very promising, as this morning’s weak Euro-Zone inflation numbers show. Market participants expect that the persistently weak run of European data will prompt the European Central Bank to start implementing a more robust QE program of its own.
The question that market participants have been grappling with lately is whether the U.S. growth picture can remain intact in such a weak global backdrop. We don’t know the answer to that question yet, but today’s market behavior suggests that investors will feel a lot more optimistic on that front once a European QE gets going.
