The new ADP jobs report, out this morning, indicates 215,000 new jobs were created in November. This is good news for the economy but perhaps not so good news for the stock market. This is because it suggests the Fed may end its bond buying program, which keeps interest rates low in order to accelerate investment and spending.
Analysts had expected 185,000 new private-sector jobs, so the number exceeded expectations by almost 25%. The ADP number is also adjusted for seasonal employment.
The Labor Department will release its official estimate of November unemployment on Friday, December 6. If the report is consistent with ADP’s new jobs numbers, then one can certainly expect the Federal Reserve to curtail its bond buying program aimed at stimulating the economy.
The large unexpected increase in private sector employment seems to confirm the Labor Department’s November jobs report which also showed a surprisingly large increase in employment during October.
Analysts will be watching the Labor Department’s report very closely this Friday. It is likely to clear up confusion that was caused by the November report and the government shutdown. That report indicated 204,000 new jobs were created. But it also found the size of the labor force declined by 720,000 workers. These two developments are contradictory because the size of the labor force should be expanding whenever the economy is adding so many new jobs.
Why the Large Increase in New Jobs?
Looking behind the numbers provides some insight into why the economy is creating so many new jobs:
- The small business sector is healthier: The largest share of job creation in the ADP report was attributable to small businesses, i.e. those with 50 or fewer employees.
- Large corporations are investing more: major indicators, such as the Purchasing Managers Index and Institute of Supply Managers report suggest corporate spending is more robust. As corporations spend more, small businesses that operate in their supply chain benefit.
- New home sales and auto sales are up: new home sales increased by 25% in September (reaching 444,000); at the same time vehicle sales increased by 1.2 million (reaching 16.4 million). These economic sectors have been driving the economy in recent months.
- Third-Quarter GDP growth estimate revised upward: the government’s estimate of GDP growth in the third quarter was increased from 2.8% to 3.2%, suggesting the economy grew more robustly during the third quarter than analysts thought.
A great deal is riding on Friday’s jobs report!
If ADP’s jobs numbers are reinforced by a positive Labor Department employment report this Friday, we can expect the Federal Reserve to cut back on its bond buying program. This would mean an increase in interest rates for the average consumer. However, interest rates have been climbing over the last several months, but the increase has not deterred consumer spending thus far.
Last modified: June 20, 2017