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Grist for the Taper Mill

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Thursday, September 5, 2013

Markets have plenty to chew on today, with the monthly ADP, weekly Jobless Claims, and Q2 productivity data already out and the service sector ISM reading coming out a little later. The picture emerging from this data is broadly positive, likely indicating that we will finally move past the Fed ‘Taper’ question after this month’s FOMC meeting.

The ADP report matched expectations, with private sector job gains in August at 176K and a modest 2K negative revision to the prior month’s data. Weekly Jobless Claims fell further, with the 4-week moving average dropping to its lowest level since the fall of 2007. The strong positive revision to Q2 productivity numbers is another favorable indicator for the broader economic outlook, even though labor market gains would be even stronger in its absence.

Gains in the ADP report were broad-based. Small businesses, with employers having less than 50 employees, added +71K jobs in August. Medium-sized businesses (fewer than 500 employees) added +74K jobs, while large businesses (1000+ employees) added +32K jobs during the month. The goods-producing sectors added +11K jobs in August, with Construction and Manufacturing adding 4K and 5K jobs, respectively. Most of the August jobs came from the services-providing sectors, with gains on that side at 165K, down from 176K the prior month.

Today’s ADP and Jobless Claims numbers build on the momentum from the better-than-expected motor vehicle sales and manufacturing ISM data from earlier this week, indicating that the U.S. economy is in good enough shape for the Fed to start Tapering the amount of monthly bond purchases. Interest rates have started moving higher in anticipation of that move, which may moderate the growth pace in housing and other rate sensitive sectors. But the overall trend is positive enough to assure the Fed that the U.S. economy could move on its own.

Sheraz Mian
Director of Research

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