Data Support Case for Ongoing Momentum in 2016
- The December ADP Employment Report showed a strong increase of 257,000 private-sector jobs.
- The ISM Non-Manufacturing Index for December dipped to a still-positive 55.3 percent.
- December Auto Sales missed expectations, easing to a still-strong 17.34 million unit rate.
- The U.S. International Trade Gap for November narrowed to $42.4 billion.
Recent economic data supports the case for ongoing U.S. economic momentum in 2016. Job growth is key to our assumption that the consumer sector will be healthy in 2016. We finished 2015 with a strong 257,000 job gain in the private sector according to the ADP Employment Report. On Friday morning we will get the official Bureau of Labor Statistics payroll job count and the unemployment rate for December. The ADP report is a good, but not 100 percent accurate, preview of the official data. So we expect to see a strong payroll gain in the BLS data of about 240,000 for December with the unemployment rate dropping to 4.9 percent. The ADP report showed an interesting distribution of jobs gains in December with small businesses (less than 50 employees) adding a solid 95,000 jobs for the month. Medium sized businesses (50-499 employees) added 65,000 workers. It was in large businesses (500+) that we find a surge of 97,000 workers added, extending what looks like a new trend in recent months of strong gains in large business hiring.
The ISM Non-Manufacturing Index for December dipped to 55.3 percent from November’s 55.9. The index has declined from a robust reading of 60.3 in July, but remains solidly in positive territory. Seven out of 10 sub-indexes were positive, including the hiring sub-index, which increased from 55.0 to 55.7 percent in December. Anecdotal comments were generally favorable.
Auto sales in December were expected to be robust again, above an 18 million unit annual rate. Instead, they were merely very good, at a 17.34 million unit rate. The very good sales in December capped a banner year for U.S. auto sales, very close to the peak 2000 number (or just above it, depending on the data source). It looks like robust sales through September, October and November spent out some pent-up demand. We do not take the December miss in auto sales as a sign of consumer fatigue. Rather, we expect another strong year for auto sales this year, close to last year’s strong pace.
The U.S. international trade gap narrowed in November to $42.4 billion, from October’s $44.6 billion. The improvement came as imports dropped by $3.8 billion for the month, while exports eased by $1.6 billion. The real U.S. trade gap in goods narrowed by $1.4 billion ($2009). This implies a small drag to 2015Q4 real GDP from trade unless something unusual happens in December. We expect the strong dollar to remain a headwind for U.S. exports through 2016. At the end of December, ConocoPhillips pumped crude oil from the Eagle Ford Shale into a tanker docked at Corpus Christi and bound for Italy. This is the first shipment of U.S. crude oil allowed after the ban on crude oil exports was lifted last month. Crude oil exports are not expected to eliminate our trade gap soon, but every export helps.
Market Reaction: U.S. stock prices opened with losses. The yield in 10-Year T-bonds is down to 2.19 percent. NYMEX crude oil is down to $34.50/barrel. Natural gas futures are up to $2.33/mmbtu.
For a PDF version of this Comerica Economic Alert click here: ADP 01-06-16.