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Wednesday, December 6, 2017

More good economic news hits the tape ahead of the opening bell today, with ADP (ADP - Free Report) private sector payroll numbers coming out better than expectations. November new private-sector jobs came in at 190K, better than the 175K expected. True, this is down a bit from October’s unrevised 235K, but that number retained some of the labor force volatility from the previous month’s hurricane activity (September jobs were way down, October way up).

The current analyst consensus for Friday’s BLS non-farm payroll report is for 195K new jobs from November. These numbers between ADP and BLS don’t always correlate in real time, but with future revisions the tend to tell the same story. And any number north of 100K — the amount of new labor participants added each month — shows further strengthening within the U.S. jobs market.

Typically, Services brought in more than 3x the number of jobs in Goods producing: 155K versus 36K. Medium-sized companies (50-499 employees) grew the most with 99K new jobs, followed by small companies (<50) with 50K and large firms (500+) at 41K. Leading sectors were Education/Healthcare (+54K) and a surprisingly strong Manufacturing (+40K) and Trade/Transportation (+36K). In another surprise, Construction actually lost jobs in the month (-4K), even with all the housing demand and further recovery from the hurricanes.

Q3 Productivity

The final read on Q3 Productivity has also come out this morning, with 3% staying unrevised from the previous month. A solid number, even though expectations were for a slightly higher revision. Labor costs, however, were revised way down: from +0.5% in the last read to -0.2% in the final read. This is not good news for what economists have been saying for a long time about wage growth needing to get stronger; in Q3, wage growth actually went backwards.

Enter the tax cut proposal, which promises to increase wages based on trickle-down economic theory. Yet with an unemployment rate trending down — 4.1% for the last BLS report, and eyeing sub-4% in the near future, if today’s ADP numbers have merit — adding $1.5 trillion in deficit-financed tax cuts could cause the U.S. market to overheat, sparking a big jump in inflation and causing interest rates to spike. Talk about kicking a sleeping giant!

Mark Vickery
Senior Editor

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