There were lots of important reports on the U.S. economy released this morning. First, data from ADP showed that business hiring slowed in America last month, with only 153K private-sector payrolls being added to the economy. That was well below the 216K gain seen in November and worse than the 172K increase economists had expected. However, the less volatile 3-month average for ADP’s hiring estimate still ended December at +164K, a relatively healthy overall pace of job creation, albeit below the monthly average for 2016 (+174K). Under the hood, essentially all of the private-sector payrolls added in December were in the services sector (+169K), including a large gain in the “trade, transportation & utilities” arena, while payrolls in the goods-producing sector experienced a net decline of 16K jobs. Elsewhere in the report, small business hiring slowed to just 18K payrolls in December, the fifth month-over-month decline in the past six months, and the weakest sequential gain since May. Smaller firms earlier last year were the main driver of private-sector job growth in America but hiring among these companies slowed considerably ahead of election and has yet to fully rebound. Hiring at larger firms also softened in December, and Ahu Yildirmaz, vice president and head of the ADP Research Institute, added that “The U.S. labor market has experienced an unprecedented seven years of growth that has brought us to near full employment. As we enter 2017, the tightening labor market will likely slow the growth.”
Next, a report from Challenger, Gray & Christmas showed that 33,627 corporate layoffs were announced in America in December, a 25 percent increase from November but below the monthly average for 2016 (43,910). Over the past twelve months, employers announced 526,915 job cuts, a 12 percent decline from 2015 and below the 539,581 annual layoffs averaged since 2010. Last year job cuts were again the heaviest in the energy sector, which announced 107,714 layoffs in 2016. That was a 14 percent increase from 2015 but most of the cuts occurred in the first half of the year. John A. Challenger, chief executive officer of Challenger, Gray & Christmas, added that “Oil prices are back on the rise. The new administration poised to take over the White House in January could further benefit the industry by relaxing regulations and drilling restrictions. Oil companies may once again start to expand in 2017. Ironically, the only obstacle in their way may be a shortage of skilled workers.” Despite the slight uptick in corporate layoff announcements last month, a broader measure of job cuts has improved recently. Indeed, the number of Americans making first-time claims for unemployment benefits plunged by 28K last week to just 235K, one of the lowest readings in four decades and the 96th sub-300K print in a row. However, this latest decline in initial jobless claims is perhaps related to yearend/holiday volatility, and therefore may not be too predictive of tomorrow’s big nonfarm payrolls report from the Bureau of Labor Statistics (BLS).
Elsewhere, the services sector purchasing managers' index (PMI) from IHS Markit ended December at 53.9, a slight decline from November but still one of the highest readings of 2016 and the 10th expansionary (+50) print in a row. Under the hood, new business growth remained solid last month, which put greater pressure on operating capacity and resulted in the fastest rise in total payrolls since September 2015. Surveyed managers attributed the elevated level of business activity to improving domestic economic conditions and greater consumer spending. However, input cost inflation accelerated in December, which many service providers said was passed on to their customers. In fact, the rate of inflation last month was the steepest recorded since June 2015. Chris Williamson, chief business economist at IHS Markit, added that “The upturn in price pressures alongside the robust economic growth signaled will also add conviction to the belief that, unlike 2015 and 2016, this year will see that Fed deliver more than one rate hike, with three quarter point interest rate rises looking the most likely scenario.” Similarly, the Institute for Supply Management’s (ISM’s) non-manufacturing index, also released this morning, ended December at 57.2, unchanged from November but better than economists expected. Measures of new orders and inventories improved last month but production, order backlogs, employment, and foreign trade all deteriorated. Comments from surveyed managers were generally positive.
Sources: Econoday, Bloomberg, ZH, ADP, Challenger, Gray & Christmas, U.S. DoL, IHS Markit, ISM, FRBSLPost author: Charles Couch