Thursday, October 8, 2015

Firms are hiring, exports are surging

Economics in a nutshell: The stars seem to be aligning for a lot better growth as firms are hiring and exports are surging.

Firms are hiring, exports are surging

Job seekers line up to talk to recruiters during a job fair. (AP Photo/John Amis)
Job seekers line up to talk to recruiters during a job fair. (AP Photo/John Amis)

INDICATOR: November ADP Job Estimates and October Trade Deficit

KEY DATA: ADP: 215,000; Small Businesses: 102,000/Trade Deficit: $2.3 billion narrower

IN A NUTSHELL: "The stars seem to be aligning for a lot better growth as firms are hiring and exports are surging."

WHAT IT MEANS: I have said many times that the government is the major impediment to growth. When people in Washington shut up about divisive issues such as debt default and government shut downs, businesses go about their business and households spend money. That seems to be happening. As is usual, ADP gave its early snapshot of what private sector job gains could look like in Friday's employment report, and the number was an eye-opener. It looks like firms are back in the hiring business. ADP indicated that the gains were spread across companies of all sizes and in all industries. Small businesses, which had slowed up bringing on new workers have reversed course, a key sign that the economy is getting better. Construction, manufacturing, trade, services and even financial companies added people to their payrolls.

A second positive sign for the economy was the sharp narrowing in the trade deficit in October. Exports of everything but vehicles were up. That points to improving world growth, which we really need if exports are to continue to expand. On the import side, U.S. purchases of capital goods and vehicles fell. Given the robust November vehicle sales pace of about 16.4 million units, the highest in nearly seven years, I would guess that lots will have to be restocked soon. Adjusting for inflation, the deficit is down from the third quarter average so there is hope that trade could add to growth this quarter.

MARKETS AND FED POLICY IMPLICATIONS: The one negative factor for growth this quarter is government spending. Except for that, the economy appears to be picking up steam. Households are buying vehicles and lots of things online. Another month of Black Friday sales, which is likely coming, will probably allow for an increase in sales that may not be great but will be acceptable. But it is all about jobs and the unemployment rate falling low enough that firms have to start bidding for workers. If ADP is anywhere near what the official job growth number looks like, that would be a powerful message that the labor market is healing. Given the decline in jobless claims, that should not surprise anyone, but it will. Indeed, if we see a drop to 7.1% in the unemployment rate, as I expect, that will signal that the time is approaching when businesses can no longer take worker pay for granted. It is not unthinkable that the unemployment rate falls to the Fed's "fuzzy target" of 6.5% by the end of the summer. If it does, wage gains will start accelerating and a year from now we could be talking about a rate hike. That would be nice, but let's not get too carried away as we still need a good report on Friday to make that possible. As for the markets, given how far the equity prices have come this year, profit taking and caution could be the order of the day for many no matter what the data indicate.

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About this blog
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm in Bucks County. He advises companies across the country on the risks and opportunities that economic developments may have on the organization’s operating environment. An accomplished public speaker, Joel’s humor and unique ability to make economics understandable have brought him a wide following. Reach Joel L. at .

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