Jobless Claims Come in Significantly Lower

December private-sector employment numbers are out from Automatic Data Processing (ADP) this morning, with results continuing to illustrate a healthy labor market, even as particular industries shows signs of recession. A headline of 235K new private-sector jobs is 82K above expectations, and more than 100K from an unrevised 127K posted for November. Goods-making jobs took 22K while Services gained 213K.

For the first time in several months, small businesses (>50 employees) have led the way with 195K new positions filled in the private sector last month. Medium-sized companies (between 5-499 employees) was close behind, with a gain of 191K. Large firms, on the other hand, shed -151K private-sector jobs last month. These figures would speak to the overall robust jobs market, though it would take a deeper dive to be sure: those losing their jobs at large companies seem to be getting hired at smaller firms relatively easy these days.

Leisure and Hospitality once again claimed the most private-sector jobs gains in December, +123K. Professional and Business Services was a distant second, +52K, with Education/Healthcare at +42K. Manufacturing, as we saw in ISM and S&P PMI data earlier this week, dropped -5K jobs last month, and Trade/Transportation/Utilities fell -24K for December.

A newish ADP metric is Wage Gains: people who remained in their private-sector jobs last month averaged pay gains of +7.3% — down month over month, but still high — while those who left their jobs and found new employment in the private sector averaged wage growth of +15.2%. This speaks to the inflationary aspects of our labor market, and that wage gains remain remarkably robust.

Initial Jobless Claims last week fell by -19K week over week to 204K from a downwardly revised 225K. This is the lowest weekly print in new claims since the third week of September last year, and well off the cycle high of 241K we saw in mid-November. Continuing Claims sank below 1.7 million again, to 1.694 million. This reverses the trend higher we’d seen in recent weeks.

All of this is good for the American labor market. It’s not what the Fed wants to see. With every strong new jobs report figure, consider it another nail into keeping a 50 bps increase from the Fed at its early February meeting. Unless we see economic metrics reverse notably, in short order, we can take the Fed at its word: “higher for longer.” Another 50 bps would put the Fed funds rate at 4.75-5.00% — tripping 5% for the first time since late 2007.

The Trade Deficit for November was also relatively favorable: -$61.5 billion, the smallest print since September 2020, and beneath the expected -$63.1 billion. This is also well below the -$78.2 billion reported in the prior month. In these numbers, we might look at good news as actually being “good news,” and not another arrow in the hawkish Fed’s quiver. It also shows a stronger U.S. economy in a larger sense, as these employment figures do.

After today’s open, we’ll see S&P PMI Services results for December, expected to come in even with the 44.4 reported for November. As with Manufacturing, this looks to be low the 50 level marking expansion from contraction. Yet in the employment numbers from this morning, at least, the Services sector is outperforming, so perhaps we can expect a stronger number here. This won’t help curb our future Fed funds rate, but at least our economy isn’t crashing.

Pre-market futures, however, are a different story: ahead of this series of reports this morning, the Dow was -80 points, the S&P 500 was -10 and the Nasdaq -20. Following this series of healthy economic data, the Dow is now -150 points, the S&P -20 and the Nasdaq -60. Until we absorb fully what the Fed means to do in the near term, we might expect a bit more “good news is bad news” on the horizon.

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