KEY DATA: ADP: 200,000/ Online Ads: -31,500
IN A NUTSHELL: “Businesses may be buying ads less but they are enjoying it more as hiring remains strong.”
WHAT IT MEANS: It’s Employment Friday week and that means the ADP estimate of private sector job gains comes out on Wednesday. Once again, the ADP report is pointing to a solid rise in nonfarm payrolls when the March numbers are released on Friday. This was as good a report as you can get as the increases were spread across all industries and firm sizes. Every sector, including manufacturing posted a decent rise in payrolls. While the industrial heartland is still feeling the pain of the strong dollar, the negative effects are dissipating and that bodes well for job gains and economic growth. Looking across firm size, there were increases in every segment. About the only soft spot was large corporate (1000 or more employees) hiring. That portion added workers, but not at as solid a pace as the small and mid-sized companies.
While hiring is strong, firms seem to be cutting back on advertising. The Conference Board’s Help Wanted Online measure fell in March. This trend has been going on, in fits and starts, since the peak last November. The weakness was not universal as ad activity rose in the West and South but fell in the Northeast and Midwest. Only 17 of the 51 metro areas posted gains.
MARKETS AND FED POLICY IMPLICATIONS: Janet Yellen is still waiting for the labor market to tighten and the rest of the world to catch up with the U.S. Yet the job market looks pretty good. The ADP report points to another job gain of about 200,000 to 225,000 in March. That is my guess and I also expect the unemployment rate to edge down to 4.8%, the Fed’s rough full-employment number. Is the moderation in want ads indicating a future softening in job gains? Not necessarily. Despite the claims that firms cannot find qualified workers, they seem to be doing so and payroll gains have been robust. Firms may simply be doing a better job of calibrating hiring activity with advertising activity. They could also be realizing that some of the open recs are not going to be filled and it doesn’t make sense to keep advertising the positions. Of course, it could be that growth has slowed and there just isn’t as much of a need for workers. I guess we will see soon enough if that is the case. As for the markets, Chair Yellen’s dovish comments yesterday were just the tonic that equity investors needed. Nothing helps equities more than a Fed Chair who is worried about the economy and wants to go slowly when it comes to raising rates. I only wish that investors would actually want strong growth and better earnings rather than just low rates, but I have been saying that for so long that even I am bored of repeating that lament. Yellen basically told the hawks that they could bleat all they want, she has no intention of raising rates in April and she is unwilling to even venture a hint at when the next move might occur. She is watching wages and the number of part-timers who want full-time jobs. I expect wage gains to re-accelerate and part-timers to fall, but I also don’t expect that Friday’s report will really make much of a difference unless it is much strong than expected. A soft report would only reinforce the view that the Fed is on hold for a while.