Job gains are accelerating

A too-familiar scene still: Applicants filling out forms at a jobs fair in Newark, N.J. (Mark Lenninhan / Associated Press)

INDICATOR: February ADP Payroll Estimates

KEY DATA: ADP: 198,000; Small: 77,000; Medium: 65,000; Large: 57,000

IN A NUTSHELL: "The economy is clearly kicking into higher gear as private sector firms look like they are starting to ramp up hiring.

WHAT IT MEANS: We get the employment report on Friday so on Wednesday ADP releases its estimates of private sector job gains. While ADP doesn't get it right every month, the numbers do match the trend well and that direction is up. It looks like private sector firms hired quite solidly in February. The best news in the report is that the gains were spread across all sizes of companies and all sectors. Instead of relying on the hiring decisions of small and mid-sized firms for job growth, the economy appears to be benefitting from renewed payroll increases at large companies. Big firms comprised nearly thirty percent of the gain when they had been at about ten percent. In addition, there was decent hiring in construction, manufacturing, trade, professional and business services and even finance. In other words, it looks like just about everyone is hiring in the private sector. Even better growth will occur when the housing market gets back to more normal, sustainable levels. Today, the Mortgage Bankers indicated that mortgage applications soared last week. That sector is pushing ahead, which bodes well for the economy and the labor market.

MARKETS AND FED POLICY IMPLICATIONS: I don't want to keep beating a dumb politician (or politicians) but the only hurdle left to strong economic activity is the chaos in Washington. The stock market is hitting new highs, the housing market is strengthening and if job gains are accelerating, there will be little doubt that the private sector is in pretty good shape. Only the public sector doesn't get it. Friday we get the government's estimate of job growth and the unemployment rate. Payroll increases should be decent and close to the ADP number while the unemployment rate could tick down, indicating that the labor market is improving. The only place where layoffs are likely remaining is the government sector. But that is before we see any of the impacts from sequestration. The impact of the declining demand for government goods and services will take a while to be reflected in the private sector payroll numbers. The full extent of the restraint on job growth is unclear as one-day a week furloughs are not counted as job cuts - only lower income. Thus, we could see some good employment reports for a while that hide the looming slowdown, assuming sequestration continues. So let's enjoy it while we can and hope that someone can round up the inmates and get them back into the asylum before they do too much damage to the economy and set the recovery back.