Will ADP Number Boost Stocks?

The major indexes are on track to start today's session in the positive, following up on favorable trading action out of the Asian and European markets. It has been a tough period for the markets lately, with rising uncertainty about the global economic outlook and the course of Fed policy weighing on market sentiment. With these issues still unresolved as we enter the last quarter of the year, the picture is unlikely to improve anytime soon.

On the data front, we got a modestly positive labor market read from ADP, the payroll processor. The ADP jobs report, which serves as a preview for the all-important monthly non-farm payroll report from the U.S. government's Bureau of Labor Statistics, showed gains of 200K in September relative to estimates of 190K and the prior month's 186K gain (revised lower by 4K).

Estimates for the Friday BLS report, which currently stand at 203K per for the 'headline' and 195K for the ADP comparable private-sector jobs, is about in-line with what we got from this morning's report. What that means is that the ADP reading will likely have no bearing on market expectations for the BLS report.

Today's jobs report is broadly within the monthly range of monthly gains over the past two years. As has been the pattern, the gains are concentrated in the service sector of the economy, with manufacturing continuing to struggle due to headwinds in the export markets and the weakness in the energy space.

In the aggregate, the services sector added 88K in September while goods-producing industries added only 12K. The construction industry had a very strong month, adding 35K positions, while manufacturing lost 15K jobs.

The construction strength is in-line with what we have been seeing in other housing related readings like housing starts and new home sales numbers. The factory-sector ISM survey coming tomorrow will likely confirm what we saw in today's reading, which is that weak demand abroad is clouding the outlook for U.S. manufacturers. In terms of business size, large businesses (500 or more employees) added 106K jobs, medium-sized businesses added 56K, while small businesses with less than 50 employees in total added 37K jobs.

The key report from the Fed's perspective is Friday's BLS non-farm payroll reading, though the Fed's last non-liftoff call was primarily because international factors, particularly fears of a major slowdown in China. Fed officials have been reiterating lately that they still plan to have the first rate hike later this year, which many believe will be in the December FOMC meeting.

As regular readers know, I have long been of the view that the U.S. economy is strong enough at present to withstand the start of a monetary policy normalization process. The decision to hold off on the liftoff decision reflected the Fed's extreme cautiousness, but it nevertheless came across as the central bank's lack of confidence in the economic outlook.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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