Tags: Non-Manufacturing | Layoff | Jobless Claims | Economy

Robust Service Industry Expansion Fades Just a Bit

Image: Robust Service Industry Expansion Fades Just a Bit
(Dollar Photo Club)

By    |   Thursday, 03 Dec 2015 06:47 AM

  • INDICATOR: November Supply Managers’ Non-Manufacturing Survey, Layoff Announcements and Weekly Jobless Claims
  • KEY DATA: ISM (NonManufacturing): -3.2 points; Orders: -4.5 points; Hiring: -4.2 points/ Layoffs: 30,953/ Claims: +9,000
  • IN A NUTSHELL:  “The services sector continues to expand solidly, though not as robustly as it had been.”

WHAT IT MEANS:  With the Fed sending loud and clear messages that a rate hike is just days away, it will take some pretty bad economic numbers for the members to pull back from the brink.  Today’s Institute for Supply Management’s survey of non-manufacturing firms was not as good as expected, but it was also nothing terrible.  The sector continues to grow at a solid pace. 

Yes, lots of components were down from where they had been, but they didn’t go negative.  Orders continued to increase, though less rapidly.  Firms continued to hire, though less aggressively, activity continued to rise, though not as strongly and backlogs continued to build, but not as quickly. 

Basically, this report hardly points to a downturn in the economy, only a modest deceleration – and only if these results are repeated over the next few months. 

Other data were just fine.  Challenger, Gray and Christmas reported that layoff announcements dropped sharply in November.  The big news was the retrenchment in the oil sector slowed sharply.  Energy companies cut workers like crazy this year and that has hyped the layoff data and restrained job growth.  To the extent that is no longer happening, we could see better payroll gains going forward.  But that takes time, as there is a lag between a layoff announcement and an actually job cut.

Jobless claims rebounded last week, but the level remains extremely low.  Firms are hanging on to their workers as tightly as possible, as we saw in the layoff announcement numbers.

MARKETS AND FED POLICY IMPLICATIONS: Chair Yellen is talking again today after having sent clear signs yesterday that the economy was coming around and that the factors restraining inflation would be dissipating next year. 

In other words, she all but said that the FOMC was ready, willing and able to start raising rates on December 16th.  She added the usual caveat that the data between now and then would matter, but as we all know, they have to terrible, not soft. 

Today’s reports were soft but hardly terrible.  Tomorrow’s employment report could end the debate.  All the signs point to a decent report, but for once, I am at the lower end of the estimates. 

The October job gain was outsized and there is likely to be some give back in the November report.  Still, my estimate of 175,000 new jobs (consensus is 200,000) and a stable 5% unemployment would be viewed as quite decent. 

Anything above 125,000 would be just fine.  Actually, we would need something close to zero for anyone to get really worried. 

I never say never, but that doesn’t look very likely.  It looks like investors expect a decent report and are more fully pricing in a rate hike. 

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JoelNaroff
The services sector continues to expand solidly, though not as robustly as it had been.
Non-Manufacturing, Layoff, Jobless Claims, Economy
502
2015-47-03
Thursday, 03 Dec 2015 06:47 AM
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