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ADP 103K, Productivity +5.2%: Goldilocks-Adjacent

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Good news hits the tape this Hump Day on economic data across the board — when’s the last time we said that? Pre-market futures are ebbing upward on the news from Automatic Data Processing (ADP - Free Report) private-sector payrolls, a revision to Q3 Productivity and an October Trade Balance. The S&P 500 is currently +10 points, the Dow +53 and the Nasdaq +46 points.

ADP results for November came in below expectations: 103K new private-sector jobs were realized; 128K had been anticipated. This is also lower than the downwardly revised previous month, which moved from 113K originally reported to 106K today. Goods-making jobs came in negative, -14K, while Services made up +117K. This figure is off September cycle lows of 89K, but a long way from 455K reported in June of this year.

We can see where the pullback is located when we look at the new private-sector jobs allotment by industry: Trade/Transportation/Utilities gained the most, +55K, followed by Education/Healthcare +44K and Financial Services, +11K. But for the first time in 16 months, Leisure/Hospitality — long the industry leader in private-sector jobs gains — actually lost jobs for the month: -7K. Manufacturing was down -15K.

Small businesses (fewer than 50 employees), which largely consist of companies in the Leisure/Hospitality space, grew by +6K last month. Medium-sized firms (50-499 employees) gained the most private-sector positions for the month, +68K, and large firms made +33K new hires in November.

According to ADP Chief Economist Nela Richardson on CNBC’s “Squawk Box” this morning, these numbers represent a pronounced change in the labor market. The Leisure & Hospitality space, which helped lead wage growth over the past year and a half, has now brought this metric lower as well: job-changers now can expect +8.3% in wage gains, and there has never been this small a “premium for changing jobs” since this has been tracked, according to Richardson.

At roughly 100K private-sector job gains per month, Richardson says we’re “still on track for a soft landing” in the overall economy. Between retiring Baby Boomers out of the workforce and new hires in Gen-Z, 100K is slightly above what is needed in monthly jobs gains to keep labor market levels buoyant. For Friday’s Employment Situation report from the U.S. Bureau of Labor Statistics (BLS), expectations had been for 190K jobs filled in November; we’ll keep an eye out for downward revisions ahead of that release.

The final revision to Q3 Productivity was also better than expected: +5.2% is 30 basis-points (bps) higher than expected, 50 bps above the previous print. It’s the best quarter for productivity since we first emerged from the Covid pandemic back in Q3 2020. Unit Labor Costs also presented good news: with -1.2% revised down from the previous -0.8% — the biggest drop since Q4 2022. As any Econ 101 student knows, higher productivity and lower wage costs make for a stronger economy. Mark another notch for staying out of a recession.

The U.S. Trade Balance for October is arguably the only piece of “bad news” this morning: -$64.255 billion is the deepest cut we’ve seen since July. The good news here is that we are well off the -$70+ billion monthly trade deficits we’d seen as recently as April of this year. Going back to early 2022, we were seeing trade deficits sink below -$100 billion — a dire situation irritated by supply chain issues, etc. Pre-pandemic, our trade balance per month was hovering around -$50 billion; we hope to pull back to those levels in 2024.

It looks as if the big market gains in November was a well-placed bet on a stronger economy and cooling jobs market — relative Goldilocks levels when we consider whether we are truly suited for a “soft landing.” The Fed, which brings forth its next interest rate decision a week from today, has got to like what it sees. Had expectations been more negative over the past few weeks of trading, we’d likely be seeing a big jump in pre-markets, but a lot of this is baked in the cake.

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