INDICATOR: June ADP Payroll Estimates/Weekly Jobless Claims/Layoffs
KEY DATA: ADP: 188,000; Construction: 21,000/Jobless Claims: 343,000 (down 5,000)/Challenger Layoffs: up 8.2%
IN A NUTSHELL: "It looks like the labor market continues to improve at a glacial pace."
WHAT IT MEANS: Friday is employment report day so today must be ADP private sector jobs estimates. The payroll services firm indicated that private sector rose at a moderate pace in June, consistent with what we have seen over the past two years. Hiring was spread across the entire economy. Large companies continue to play a major role but the smallest businesses are still creating the most jobs. Manufacturers did almost no hiring but the rebound in housing is starting to show up in robust construction jobs. We are even seeing some gains in financial services.
The ADP numbers are supported by other data released today. Jobless claims eased somewhat and the level is consistent with job growth in the 175,000 to 200,000 range. Also, Challenger, Gray and Christmas reported that layoffs rose in June. Since layoff announcements are quite lumpy, I don't worry too much about the month-to-month moves. Looking at the first half of this year, layoff notices are off 8.5% from the same period in 2012. Also, the second quarter's numbers are down over 21% from the first quarter. The job cut trend is down and while that points to stronger payroll gains in the future a second report raises questions about that. The Conference Board's Help Wanted Online Index faded in May and that argues against stronger employment numbers going forward. In other words, what you have been seeing is likely to be what we will be getting.
MARKETS AND FED POLICY IMPLICATIONS: It's the day before the July 4th holiday so I have no idea who is going to read this. I am already at the shore. Regardless, all these reports point to Friday's payroll number looking an awful lot like the May's release. ADP's estimates have been too low for a while so they are probably due to be too high. So don't take the number as gospel. What we do get from the labor market data is that despite sluggish economic growth, businesses are continuing to hire when and where they need. They are not gearing up for strong growth so job gains are not likely to be robust. But they are not hunkering down either. How the markets react is anyone's guess. Good news might be bad news for the markets as anything that argues for the Fed to end QE sooner rather than later is not appreciated. But even that reaction will likely change since good news is, well, good news. The markets have to be weaned from the Fed's forced feeding but the timing remains critical. Job gains less than 200,000 imply modest improvement in the unemployment rate and that argues for going slowly. Of course, the open mouth strategy at the Fed is doing a great job of confusing things so guessing market reaction to any one number is likely to be just that, a guess.