Job creation rolls on, today’s ADP Employment Report advises. The preliminary update for November shows a net gain of 206,000 private sector jobs on a seasonally adjusted basis. That’s the highest monthly advance for this series since December 2010. If there’s a recession brewing in the U.S., it’s not obvious in these numbers.
Never say never, but history strongly suggests that new recessions don't arrive with this level of job creation. Granted, there’s always a contingency these days, and it starts with the euro crisis. With Europe widely expected to dip into a recession, if it’s not there already, the strength in U.S. job growth could evaporate quickly. Even so, the revival in private sector jobs provides an additional buffer against future troubles.
More immediately, the ADP news raises confidence for anticipating that the U.S. Labor Department’s estimate of job growth (scheduled for release this Friday) will be comfortably in the black. Not surprisingly, there’s a high correlation through time between the monthly change in the ADP number and the Labor Department's summary of private-sector fluctuations.
For the 10 years through October, the correlation between the two series is roughly 0.95. In the short term, however, there's relatively wide divergence. Consider recent history in the graph below, which compares the monthly changes for the ADP and Labor Department statistics. Note that the pair trade places from time to time in terms of one exceeding the other. That’s a sign that the current gap will soon reverse, as it always has in the past. The latest ADP data point is unusually high relative to the last number from the government. Given today’s relatively strong ADP report, the statistical implication is that Friday’s Labor Department update will at least bring news of stronger private sector job growth in November vs. October. Of course, the alternative view is that the gap will close with a future downward revision in the ADP number. If so, we'll likely see a weaker-than-expected update on Friday. Stay tuned.
Meantime, progress is visible once again on the jobs front, if only for the moment. If somehow the euro crisis and the budget troubles in Washington could magically disappear, I suspect that the economic momentum would be even stronger. But we live in interesting times and so we have to settle for a resilient labor market that’s facing down lots of uncertainty and risk. Impressive. There’s still no silver bullet in today’s ADP report, but it’s clear that the economy isn’t succumbing to the darker side of the business cycle, at least not yet.
“Things are getting better for the economy,” says Robert Brusca, chief economist at Fact & Opinion Economics. “It means the news we have on Christmas shopping and on an increase in consumer confidence may have some validity.”
But there's always the catch to any good news in this climate, as William Larkin of Cabot Money Management reminds: "The ADP is a pretty good number, but it will put a lot of weight on Friday's data, especially coming off of yesterday's consumer confidence number. However this news puts us on the path of stronger equities."
What's needed to dispatch the recession talk once and for all is clear follow through in support of today's number. An encouraging number in tomorrow's weekly update on jobless claims would be a good start, as would a strong number in Friday's Labor Department report. The real test is how the economic numbers play out in the weeks ahead. If the U.S. economy can hold its ground even as Europe shudders, there's still hope.
We are, it seems, at a critical juncture, albeit with a bit of a tailwind in today's labor market news. No wonder, then, that the world's major central banks today launched "coordinated action to shore up the global financial system…" Strike while the iron is hot.
The battle to keep growth alive rages on. Score one for the labor market on that front. The war's outcome is still undecided, but the troops can at least rally behind another assault against the debt deflation enemy. Alas, there are still many more battles yet to come.