Yesterday the ADP employment report surprised sharply to the upside when it reported a December employment gain of 297,000 jobs, versus an estimate of 100,000. That was certainly good news, and it may just be confirming some of the positive trends that we’ve seen lately in such things as unemployment insurance claims, the Conference Board’s Employment Trends index, and average hours in the workweek.
As always happens, the bulls have trumpeted this news, and the bears pick away at the details of the report. Tomorrow will bring the over-hyped monthly payroll report, and market watchers will focus on the unemployment rate, and total nonfarm payroll jobs created. The consensus is currently for a job gain of 150,000, with 175,000 anticipated out of the private sector (meaning losses from the government sector). Anywhere around the consensus would be encouraging from a cyclical perspective, and it wouldn’t be surprising to see a decent number that coincides with the pickup in the aforementioned trends we’ve been watching. But there is no use in guessing what the actual number will be since the median difference between estimated and actual is close to 100,000, and any miss within around 100,000 is statistically insignificant anyhow.
What I really wonder about is whether a good number will matter much in the short term. We’ve been monitoring elevating levels of complacency among stock investors lately and worrying that the market might be due for a countertrend correction. Watching the market’s reaction to tomorrow’s payroll report will be as interesting as the number itself. I’m watching to see if a good report is met with selling, which might be an indication that a short term top is in. A bad number followed by buying might be equally interesting and imply that right now even bad news can’t keep this market down, so maybe stretched is about to become ultra-stretched. Tune in tomorrow, it should be an interesting show.
Chart: ADP Employment Report (yardeni.com)