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Strongest Jobs Levels Since the Hippie Era

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Wednesday, August 1, 2018

We see another strong private-sector jobs report released by ADP (ADP - Free Report) before the bell today, the first Wednesday of a new month. The headline number was once again higher than consensus estimates: 219K new non-government, non-farm jobs were produced in July, up big from the expected 185K. June’s total was revised upward another 4,000 jobs to 181K. Not bad for a sleepy summertime.

There looks to be a typical split between Goods and Services jobs in the mix, with 42K for the former and 177K for the latter; generally in today’s domestic economy, we see three service jobs (nurse, waiter, truck driver, etc.) for every goods-producing job. The breakdown by size of company shows medium-sized firms (between 50-500 employees) brought in more than half the new jobs in the month, at 119K. Small businesses hired 52K new employees, and large companies brought up the rear with 48K.

By industry, we see another rather typical breakdown: 48K new jobs in Education/Health Services led the pack, with Leisure/Hospitality bringing in an additional 37K. One hallmark of the so-called “Trump economy” is relative strength in Manufacturing and Construction employment, up 23K and 17K for July, respectively. There had been months during the multi-year labor market strengthening where those industries were posting negative new jobs numbers. Those days appear to be over.

Although we’ve seen some industrial headwinds with the already enacted steel and aluminum tariffs, these do not seem to have made their way into employment data at this stage. As trade tensions intensify, however, and the longer they endure, the more likely we will see them take a bite out of jobs numbers.

These ADP numbers always come out ahead of the Federal government’s non-farm payroll report from the Bureau of Labor Statistics (BLS), scheduled for release on Friday morning. Expectations are for 190K new jobs for the month of July in the BLS, but we may see some late upward revisions now that the ADP have surprised notably to the upside.

The Unemployment Rate last time around was 4.0%; should we see another 200K+ month in jobs growth, we may see this number tick back down into the 3s once again. We are already below the turn-of-the-millenium lows, and have been lately seeing the smallest unemployment numbers since Laugh-In.

What does this mean for Fed fund rates? In the near term, not likely anything. The second of a two-day meeting of Federal Open Market Committee (FOMC) closes this afternoon with a public statement from Fed Chair Jay Powell, where a decision to not raise rates another quarter-point is a virtual lock. The next interest rate hike is likely to come at the FOMC’s September meeting, with another potential hike in December.

Mark Vickery
Senior Editor

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