INDICATOR: September Non-Manufacturing Activity, Private Sector Jobs and Online Want Ads
KEY DATA: ISM (Nonman.): +3.1 points, Orders: +1.2 points; Jobs: +5.7/ ADP Jobs: +230,000/ HWOL: +145,100
IN A NUTSHELL: “Whatever soft-spot the economy may have hit in August was wiped out in September.”
WHAT IT MEANS: As the August numbers came in, it was apparent that some sectors, including manufacturing and housing, were starting to slow. That is likely still the case, but you cannot say that about the services portion of the economy. The Institute for Supply Management’s nonmanufacturing index rose solidly in September to the highest level since its inception in 2008. There were no components of the index that were down. Orders grew faster and firms are hiring like crazy. That bodes well for Friday’s payroll numbers. Backlogs are expanding and coupled with the strong orders, should lead to continued robust activity. The only issue is growing input cost pressures. That includes both labor and goods.
Speaking of a potential strong September jobs report, ADP’s estimate of private sector payroll gains was off the charts. The projected gain was the largest since February and just about every sector posted solid increases. Small, mid-sized and large companies hired heavily. This report can miss greatly, at times, but it is so strong that the risk to Friday’s number is that it will be higher than the general consensus of about 180,000.
With firms hiring like crazy, it was not a surprise that the Conference Board’s Help Wanted OnLine measure increased strongly in September. However, the level of online want ads have been bouncing around in a range for the about two years now and the September number does not represent a break out.
MARKETS AND FED POLICY IMPLICATIONS: The big numbers in today’s economic data should be providing support to the bulls in the markets. But it is also creating the concerns that inflation could accelerate as well and interest rates are rising at the longer-end, not just the Fed-induced shorter-end movements. As for the Fed, the inflation doves may want to take cover as the hawks are likely out hunting. The next FOMC meeting is in a month and don’t be surprised if the Committee makes it clear another hike will occur at the December 18-19 meeting and many more afterwards. With Amazon raising its wage to $15 per hour, pressure will be on firms competing for the limited workers that are out there to match that number. It looks like the holiday hiring season will be strong, especially for online fulfillment (warehousing, call centers, transportation) and if the wage number in the employment report doesn’t start reflecting the growing pressures, maybe we should stop using it. I think the average hourly wage number is a joke, but it is all some people look at and it needs to be discussed. But for businesses, both wages and benefits are rising and that trend needs to be measured better. Regardless, the economy is in really good shape.
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.
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