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Breaking Down the ADP Numbers

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The focus will likely remain on the unresolved ‘Fiscal Cliff’ question, even though we have a number of key economic reports this morning. The problem with economic data lately has been that it is difficult to discern underlying trends given distortions by Hurricane Sandy. And we are seeing the same element at play in today’s private-sector jobs reading from payroll processor Automatic Data Processing (ADP - Free Report) , though the headline tally is only modestly lower than what was expected.

The non-manufacturing ISM survey coming out a little later is expected to have the least amount of storm effects and will likely provide a relatively undistorted look on the economy’s service sector.

The ADP report is showing modestly weaker-than-expected private-sector jobs of 118K in November versus expectations of 125K jobs created. This compares to gains of 157K in October (revised down by 1K from 158K originally reported). The November tally was reportedly lowered by approximately 86K due to Sandy, with manufacturing, retail, leisure and hospitality, and temp work particularly hard hit.

Goods producing sectors added 4K jobs in the month, with gains of 23K in construction offsetting the decline of 16K in manufacturing. In terms of company size, small businesses (with less than 50 employees) added 19K jobs, medium businesses (less than 500 employees) added 33K, and large businesses (more than 500 employees) added 66K.

The service sector added 114K jobs. The employment component of today’s service sector ISM report will give us more color on trends in this key sector.

This is not a bad report,  keeping in mind that the storm took out roughly 86K jobs from the tally. What this means that pace of job creation in the economy has not materially changed from what we have been seeing in recent months. The concern has been that the recent downtrend in corporate capital spending will start showing up in reduced hiring as well. But this report doesn’t show much evidence of that.
The expectation for Friday's BLS report ahead of this morning's ADP report was for headline gains of around 80K. It is unlikely that we will see any material revisions to those estimates.

The key takeaway from this ADP report coupled with what we have been seeing in recent months is that the labor market is modestly improving at a pace somewhere in the 150K monthly range. If we don’t see any material deterioration in this trend despite the ‘Fiscal Cliff’-related uncertainties, then I will be counting that as a positive for the economy.

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