ADP reports Private Sector Employment Increased by 497,000 Jobs in June. ISM Services was strong. More Fed rate hikes are in the picture.
Please consider the ADP National Employment Report for June.
Goods-Producing Highlights
- Natural resources/mining 69,000
- Construction 97,000
- Manufacturing -42,000
Service-Providing Highlights
- Trade/transportation/utilities 90,000
- Information -30,000
- Financial activities -16,000
- Professional/business services -5,000
- Education/health services 74,000
- Leisure/hospitality 232,000
- Other services 28,000
Key Comments
- Job creation surged in June, led by consumer-facing services. Leisure and hospitality, trade and transportation, and education and health services showed strong gains. Still, the market was fragmented, with manufacturing, information, and finance showing declines.
- “Consumer-facing service industries had a strong June, aligning to push job creation higher than expected,” said Nela Richardson, chief economist, ADP. “But wage growth continues to ebb in these same industries, and hiring likely is cresting after a late-cycle surge.”
ISM Services Rebounds Sharply, Prices Rise 73 Straight Months
Earlier today I noted ISM Services Rebounds Sharply, Prices Rise 73 Straight Months
Divergences
- GDP vs GDI: Largest Discrepancy Between GDP and GDI in 20 Years
- Jobs vs Employment: Jobs Grow by 372,000 but Employment Shrinks by 315,000
ISM is another divergence in this strangest of strange economies. ISM manufacturing signals a recession that isn’t here unless Gross Domestic Income (GDI) is correct.
We have not seen an economy anything like this one for something like forever.
ADP Report Adds to the Divergences
Manufacturing, Information, Financial Activities, and professional and Business Services are all struggling according to this report.
Yet, the overall picture is sure to increase talk of more rate hikes by the Fed.
Bond yields are up across the board with the 10-year yield, 5-year yield, and 30-year yield up 11, 14, and 10 basis points respectively.
The major US stock market indexes, DOW, Nasdaq, and S&P 500, are down about one percent each.
Are these numbers real? Are any numbers we are given real? How can all the Leading Economic Indicators be negative, and they still tell us everything is just wonderful? It does not make any sense to me. If everything is so good, then why do markets crash on “good news” and go up on “bad news?” Is what the Fed does, the only game on the planet? If so, then we need a new system desperately.
It’s for reals, job report this morning positive although not as high as expected. Wage growth up. Economy still hot.
https://www.cnbc.com/2023/07/07/jobs-report-june-2023-.html
Good work Mish!
Down 366 points. Only 33,000 to go before we approach what assets are really worth in this economy.
http://dlthornton.com/images/services/The%20Effect%20of%20the%20Feds%20Target%20on%20Interest%20Rates%20A%20Clarificatioin.pdf
“The figure shows that market rates have nearly always led changes in the Fed’s federal funds rate target over the period. To me and others this suggests the Fed has been following interest rates up and down. Others suggest this has happened because the market anticipates the Fed’s rate changes, so market rates move in advance of the target change. The data alone cannot answer this question”
Powell has been loathe to tighten.
Good news is bad news.
Construction in central California is ‘normal’. Instead of business walking in the door, contractors now need to work the bid process like they did pre-C19.
Restaurant volume in town continues to be low. Not many want to spend $25 a day on lunch. Over $20 for a good Reuben sandwich these days. (Plus the expected 20% tip and 9% sales tax, of course)
Capital goods spending in the Midwest is slowing. Seems like capital spend is in or near recession.
Nobody seems to have filled their job openings and stopped hiring.
All in all, heading into an election year, with fiscal stimulus in the pipeline, I’d say no broad recession until 2025.
Prices are going up. Hourly rate for attorneys five years ago was $450 about 5-6 years ago, now $750+. Always going up but big jump in the last year.
Yes, “More Fed rate hikes are in the picture.” I remain bewildered by the market’s reluctance to accept the obvious.
Of course there will be another quarter point hike shortly. We all knew this months ago. And there will be another hike later this year. The debate should be, will we see a possible 3rd hike in calendar year?
Why so many more hikes needed? IF 2% inflation is the Fed’s goal, and with the past year of Fed hikes not forcing inflation’s descent at a quicker pace, more “blows to the foundation” are reluctantly necessary. Perhaps, you disagree. Illuminate to me why somehow the Fed will be forced to abort all “necessary” hikes after the July increase.
Thought I would add this WSJ piece from today (sub. needed):
https://www.wsj.com/articles/why-interest-rates-dont-cool-inflation-enough-they-hit-the-wrong-places-890e5bba?mod=djemHeardEUH
https://www.smbc-comics.com/comic/more-beautiful
funny, you did some good in the world today.
Who here have service sector jobs?
Not me. But my neighbor does. He has his own 1 man pool servicing (cleaning / repairs like pump replacement) company. He pulls in well over 6 figures.
He was over for a July 4th BBQ and said business is booming and that he has to turn down countless people calling him wanting monthly pool service contracts because he’s already working 50+ hrs a week. He won’t hire anyone to help (beyond taking his kid with him in the summer months) because it’s his reputation on the line and he feels that only he can do things up to the standards that he’s set.
I missed my calling. Why go to college, move up the ranks, only to be crapped on by sycophants and backstabbers, bosses that are wary of anyone that contribute more to the bottom line than they do, or turn fifty-five and are put out to pasture as part of restructuring but in reality they can replace you with a thirty-five year old suck butt that will do what they are told and never question authority at a cheaper salary, bonus and benefits package.
ADP is always wrong, often by a fair amount.
“We have not seen an economy anything like this one for something like forever.”
Here’s the thing, there is a large group of people that can never be “fired” and their spending won’t ever stop until they die – social security & medicare recipients. You can think of this as a “labor force” 71.259 million strong getting paid except there is little to no “labor” just the spending force.
Source: https://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/
Anytime anyone has mentioned UBI (Universal Basic Income), commenters here go ballistic talking about socialism but that’s exactly what social security & medicare enrolled are doing right now.
It’s not all that strange that all of these jobs are “service” related because after you consume a house and fill it up with stuff, all you want after that are services. Hmm..I wonder which demographic group has their home filled with stuff right now….and an itch to spend?
And whatever happened to Tony Bennett? I miss Tony’s predictions.
The difference between Social Security/Medicare and UBI is that those receiving Social Security/Medicare did in fact work / perform work in the past (and yes, there are a few who receive while having never worked but that’s a small percentage) and technically they are just getting paid ‘now’ for that work.
UBI is given out without any work being done at all.
Yep. People are receiving what they already paid for.
Big money to be made making them feel good about how they’ve lived their lives.
I believe SS is based on people working and paying into the SSTFfor decades. Compare that to an 18 yr old who never paid into the system and will get checks for the next 70 years. How will UBI be funded?
You admitted that the 70 million retirees spending while not producing is causing inflation. What happens to inflation when that 70 million becomes 140 million or 240 million? Might that cause a bigger inflation problem?
An interesting anecdote follows: Hospitality and Leisure per a tel con with a manager at a hotel said that bookings are stratospheric due to airlines cancelling flights due to lack of air traffic controllers over the 4th of July holiday. Said manager also remarked that bookings this year are off the charts.
Regarding employment: “Employer” of gig workers or 1099 vendors said last year that “employee” pool was hard to find but since May of 2023 no problem. In fact “employer” has a surplus of 1099 vendors and has no problem filling assignments.
Most of the job gains were low skilled. I think this is just more covid job loss rebound. Many low skilled workers now need to get the jobs they lost with covid back.
Mish, this reply is for you too will try to post elsewhere
So a client of mine comes to me with a potential new hire…the guy has a Taxpayer ID #(TIN) not a social……That does NOT allow you to work in the U.S.
I said run it by your payroll company, I do not do your payroll
Guess what, they ran it through payroll…….maybe they come back end of the quarter and question this but there are some payroll companies that just let this go so I think they are counting illegals in the job gains
Now this guy will NOT get credit for social security as far as I know, but maybe they are rewriting that one too………..Are there any rules anymore????
PS. i would estimate over the last 25 years a million illegals were hired and although the SS and medicare is withheld from their paycheck, they cannot collect without a valid SS#……That will be the next change in the system. Somehow the Dems will figure out a way for them to get credit, which you could argue they should since they are paying into it………just a cluster_uck
I see jobs advertised everywhere. Also, I see people that make decent money spending especially if you got two earners.
On an interesting note, I put some flooring in my place. The guy running the store said they were converging the sales/display room with the warehouse. The reason being that people are starting to pull back from purchases. This is in Northern California. Also, he said that sales are going bonkers (same company) in the Carolinas. He said business is booming there and they were opening up some more warehouses in North East.
I spoke to a guy (a plumber) who runs a company and he told me that a lot of plumbers he knew from Northern California had moved to North Carolina or South, can’t remember, and making big bucks. The construction there is bustling.
So, I think the story varies depending if you are doing well or not. For those that are making decent money ( i.e. high paying jobs or two income earners) then you will pay whatever regardless inflation.
Somehow, I see a lot of financial pundits don’t see this. It’s right in your face guys. Wake up. I blame the Fed for all this distortion. I don’t think they got a clue what to do. Bunch of morons.
During covid, we had a boom in traveling nurses that would move from city to city to fill huge gaps in labor (nursing) shortages. New York sucked up a whole lot of nurses because they were paying top dollar and had the most need given their population size.
Now imagine in the future where we have traveling plumbers, electricians, carpenters, doctors, etc.. If the job can’t be done remotely, it will require swarms of people traveling to places. This will be a boom for certain industries and a huge profit potential but I’ll let you do your own research. I see this as the new normal and it won’t just be in the U.S. it will be everywhere.
You can really see this in action now after hurricanes.
You get massive numbers of Utility repair men coming in immediately to repair downed power lines etc. Then a huge influx of tradesmen of all types as part of the cleanup and repair.
I definitely agree that being mobile or willing to go mobile for a few months at a time is going to be huge going forward. Younger single workers can make a bundle.
Absolutely on the Carolinas, North and South even more from 2 sources of mine down there.
CA is a shithole
The short-term rate-of-change in American Yale Professor Irving Fisher’s “equation of exchange”, the proxy for the real-output of goods and services (the distributed lag effect), bottoms in June.
So, without additional QT, there shouldn’t be a recession call in 2023.
And definitely not with the FHLB pumping as much as 2 trillion dollars worth of liquidity into the system and the FED pumping another 2 trillion via the BTFP.
Didn’t Fisher two days before the market crashed in ’29 say that the markets were priced low?
“All analysis is a model” – Nobel Laureate in Economics Dr. Ken Arrow.
SPY & AAPL closed the gap on low vol. AAPL > T&K.