There were a few important reports on the U.S. economy released this morning. First, data from ADP showed that business hiring continued to strengthen in America last month, as 263K private-sector payrolls were added to the economy in March. That was significantly better than the 170K increase economists had expected and one of the largest monthly gains recorded during the past few years. The February figure was revised sharply lower but the less volatile 3-month average for ADP’s hiring estimate still rose to +259K in March, the highest reading since June 2014. Under the hood, most of the private-sector payrolls added last month were as usual found in the services sector (+181K), including large gains in the “professional & business” and “leisure & hospitality” arenas. However, payrolls in the goods-producing sector experienced a net gain of 82K jobs in March, the second monthly improvement in a row. Construction hiring drove that increase, which is an encouraging sign that February’s uptick in U.S. construction activity continued in March. Another highlight from the report is that small business hiring jumped to 118K payrolls last month, the largest gain since June of last year.
Elsewhere, the purchasing managers' index (PMI) from IHS Markit for the U.S. services sector, which accounts for a much larger share of the overall economy than manufacturing, ended March at 52.8. That was the second monthly decline in a row following the 14-month high hit in January, worse than expected, and the lowest headline reading since September. However, it is worth remembering that any reading over 50 signals activity expansion, and Markit’s index has held above this level for 13 consecutive months. Further, new orders rose again in March, and job creation firmed as managers continued to tackle order backlogs. A clear negative in the report, though, was input cost inflation, which put additional strain on margins last month due to “higher labor costs and prices for basic materials and food products.” Similarly, the Institute for Supply Management’s (ISM’s) non-manufacturing index, also released this morning, ended March at 55.2. That was much worse than anticipated and the lowest headline reading since October. Measures of new orders, production, and employment all deteriorated last month but comments from surveyed managers were generally positive. Chris Williamson, chief business economist at IHS Markit, added that “The March PMI numbers add to the picture of a relatively modest opening quarter to 2017 for the US economy. The surveys of manufacturing and services are running at levels consistent with GDP expanding by 1.7% in the first quarter.”
Sources: Econoday, Bloomberg, ZH, Twitter, ADP, IHS Markit, ISM, FRBSLPost author: Charles Couch