Not Worse is the New Better
- The ADP Employment Report for September showed an increase of 91,000 private sector jobs.
- The September ISM Nonmanufacturing Index dipped insignificantly to 53.0 for September.
- The BLS payroll number for September is expected to be +75,000. The U rate stays at 9.1 percent.
The ADP payroll survey for September showed a gain of 91,000 private sector jobs for the month, statistically unchanged from the August gain of 89,000. Small companies, with fewer than 50 employees, did most of the heavy lifting for the month, adding 60,000 jobs. Medium sized companies, with payrolls between 50 and 499 employees, added 36,000 jobs in September. Large companies, above 499 employees, cut their payrolls by 5,000 workers. When we look at the mosaic of recent labor market data we start to see some interesting patterns with implications for the near-term. In the September ISM Manufacturing Survey, the employment sub-index increased to a healthy 53.8. The ISM Nonmanufacturing employment sub-index for September fell to a weak 48.7. Here is a story that fits the pattern. Manufacturing companies cut payrolls severely in 2008 and 2009. As long as global demand does not weaken significantly, they will not be forced back into wholesale job cuts. Construction payrolls are already minimal. Some large service sector companies did not cut payrolls significantly in 2008/09. Given the weak global macroeconomic outlook, now may be the time for them to trim payrolls. Smaller companies, which are already operating much closer to minimal payrolls, cannot cut jobs without significant changes to their business models. State and local governments are still cutting, but at least state finances are stabilizing. This pattern suggests that even in the event of a shallow recession in the U.S., due in part to weaker consumer spending, job losses will not approach the bloodletting we saw in the last downturn.
The ISM Nonmanufacturing Index for September slipped insignificantly to a still-positive 53.0, reflecting the fact that consumer spending did not fall out of bed, as feared when consumer confidence crashed in August. The employment sub-index did slip, adding a cautionary note to expectations for Friday’s BLS payroll survey. Nine industry groups reported growth and eight reported contraction. Anecdotal reports point to ongoing concern about weak confidence numbers.
Market Reaction: Stocks are back to neutral after morning gains. Treasury yields are up. WTI crude is up to $78.48/barrel. The dollar is up against the euro and down against the yen.