Re­ports point to an econ­omy that’s in a nor­mal range

Daily Local News (West Chester, PA) - - BUSINESS - Joel Naroff Colum­nist

IN­DI­CA­TOR: >> Septem­ber Pri­vate Sec­tor Jobs, Non-Man­u­fac­tur­ing Ac­tiv­ity, Help Wanted and Au­gust Trade Deficit KEY DATA: >> ADP: 154,000/ ISM (Non­man­u­fac­tur­ing): +5.7 points; Or­ders: +8.6 points/ HWOL: -93,800 / Trade Deficit: $40.7 bil­lion ($1.2 bil­lion wider) IN A NUT­SHELL: >> “On this big day for data, it looks like the econ­omy is strength­en­ing even if job gains may not be great.” WHAT IT MEANS: >> With Fri­day be­ing the day we get the Septem­ber em­ploy­ment num­bers, hints at what they may look like are an­a­lyzed care­fully. ADP’s re­port on pri­vate sec­tor job gains came in a lit­tle lighter than ex­pected, as in­creases in small busi­nesses were soft. That may be due to some volatil­ity in those num­bers, but it could also be a warn­ing about some softer eco­nomic growth. That said, the num­bers don’t im­ply a weak jobs re­port. ADP’s av­er­age for Au­gust and Septem­ber was about 165,000 per month. With only 126,000 be­ing created in Au­gust, the govern­ment’s num­ber on pri­vate sec­tor gains could be be­tween 175,000 and 200,000, which is where I have it. One warn­ing, govern­ment ed­u­ca­tion jobs have been run­ning above trend, so watch for that seg­ment to re­strain job growth. Also, the soft man­u­fac­tur­ing sec­tor could also lower the Septem­ber num­ber.

Adding to the un­cer­tainty over Fri­day’s re­port was the drop in help wanted ads on­line. The Con­fer­ence Board’s mea­sure was down af­ter be­ing largely flat Au­gust. Still, the third quar­ter av­er­age was up from the sec­ond quar­ter, a turn­around from the large de­clines in the spring. That seems to im­ply the mar­ket has firmed, or firms are feel­ing the pres­sure, again, to fill all those open po­si­tions that they had de­cided not to bother fill­ing.

On the eco­nomic front, The In­sti­tute for Sup­ply Man­age­ment’s Non-Man­u­fac­tur­ing Index surged in Septem­ber. The re­port was strong across the board as or­ders jumped, hiring in­creased sharply and or­der books started fill­ing again. This re­in­forced the gains that were seen in Mon­day’s man­u­fac­tur­ing re­port, which was also up nicely, led by a ma­jor re­bound in new or­ders. The strong rise in ser­vices hiring and the al­most neu­tral man­u­fac­tur­ing em­ploy­ment index holds out some hope that Fri­day’s re­port could be bet­ter than ex­pected.

The trade deficit widened slightly in Au­gust. The ma­jor rea­son for the in­crease was pay­ments for the broad­cast right of the Sum­mer Olympics, which dis­ap­pears un­til the Win­ter Olympics starts. In other words, that was a tem­po­rary is­sue. Ex­ports rose be­cause of a surge in non­mon­e­tary gold. Mean­while, over­seas sales of food and cap­i­tal goods (air­craft) were down while the in­creases in ve­hi­cle and con­sumer goods ship­ments

were rel­a­tively mod­est. We im­ported more of most things ex­cept con­sumer goods and in­dus­trial sup­plies (mostly non­mon­e­tary gold, again). Ad­just­ing for prices, trade could add to third quar­ter growth. MAR­KETS AND FED POLICY IM­PLI­CA­TIONS: >> The re­cent eco­nomic data seem to show that what­ever malaise the econ­omy was in dur­ing the first half of the year was re­versed in the sum­mer. But jobs mat­ter, so watch Fri­day’s num­ber, which I expect to be around 190,000 - but only be­cause the pri­vate sec­tor job gains in Au­gust were well be­low nor­mal. It will be make up time, not a shift to bet­ter job gains. With the un­em­ploy­ment likely to de­cline slightly, there are few peo­ple out there look­ing for jobs who aren’t al­ready em­ployed. Firms need to ei­ther poach work­ers from other com­pa­nies or move their part-timers into full-time po­si­tions. Given the re­luc­tance to pay up to at­tract work­ers, it is likely that job growth in the 150,000 range will be­come nor­mal. That might ap­pear dis­ap­point­ing, but slower job growth is what hap­pens in tight la­bor mar­kets. How in­vestors read to­day’s data-dump is un­clear, but the num­bers point to de­cent eco­nomic growth with job gains about as good as can be ex­pected un­der the cir­cum­stances.

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