INDICATOR: September Private Sector Jobs, August Pending Home Sales and 2nd Quarter GDP (3rd Estimate)
KEY DATA: ADP: 749,000; Manufacturing: +130,000/ Pending Sales: +8.8%; Over-Year: +24.2%/ GDP: -31.4% (up 0.3 percentage point)
IN A NUTSHELL: “Employment keeps rising and the housing market keeps soaring, additional signs that the recovery remains on track.”
WHAT IT MEANS: Stimulus? Who needs more stimulus? (I will answer that in a little while.) With the employment report coming out on Friday, Wednesday means the ADP estimate of private sector payroll gains. They will likely look really good. The ADP numbers have not been matching up very well with the Labor Department’s reports, they were only about one-third the official increase in August, but the estimate for September is still pretty strong.
And the gains are distributed across all sizes of companies and all industrial sectors. Surprisingly, the report found that manufacturing could lead the way. BLS reported that this sector added a total of seventy thousand new positions in July and August. ADP says that the gain in September might be nearly twice that number. That seems a bit high.
On the housing front, smoke jumpers may be called in soon to help slow the fires. The National Association of Realtors reported that pending home sales continued to surge in August and the index hit a record high. It is now almost twenty-five percent above where it was last year. Either the market in August 2019 was a mess or this is a really crazy market that is beginning to get out of control. With inventory almost nonexistent, I don’t know how realtors are selling so many homes, but apparently they are.
The third and final (at least for a while) estimate of second quarter GDP was released and the revisions were modest. Consumption, residential investment, and state and local government spending were revised upward. Those increases were almost completely offset by downward revisions to exports and investment in intellectual property. Given the record overall decline, the change was not really worth noting.
IMPLICATIONS: The good data keep coming in and at least when it comes to the labor market, that should be the case for a while. States continue to reopen further and Florida even appears to believe the virus threat is over as it is now largely open for business. Good luck with that. Other states are easing restrictions more slowly, but the more they reopen, the more people who return to work.
Thus, the September employment report should be strong, though I would not be surprised if it is a lot less than the nearly 1.4 million increase we had in August. Indeed, it should be closer to ADP number, which is pretty much the consensus. With job losses (derived from the claims data) running at the same pace in September as they were in August, don’t be shocked if we don’t get the expected decline in the unemployment rate. Indeed, a modest rise would not be out of the question. Regardless, Friday’s numbers should be really good. As for investors, they seem to understand what I have been arguing for months: The economy is not able to stand on its own. Stories that another stimulus package could happen were greeted with cheers.
Or, maybe its just what I have noted about the markets, also for months, that bad news is no news, modest news is good news and good news is great news. Despite the recent declines, the trend still looks to be up, as long as the stimulus package remains on the table (and we don’t have to go through another horror show like last night). If prospects of more free money for everyone disappear, then as the saying goes, that will be when the rubber meets the road. And it just might be icy.
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.
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