With only three months ahead of the U.S. Presidential elections, the economy starts picking up steam. There is even a debate now if the recent signs of recovery belong to a new business cycle that already started, or this is just a bounce, and more pain lies ahead.
Judging by the stock market, everything is simply fine. The Dow Jones managed to close above 29,000 for the first time since the coronavirus crisis, staging an impressive rally. Nasdaq100 is up over 40% for the year – a staggering development considering that the world was affected by the pandemic.
One of the first indicators to have a look at during economic recessions are the job market indicators. Because they are lag indicators, investors consider the recession over if they see a notable improvement in the job market. This is why the ADP or NFP data is so important for financial markets.
Almost Half a Million New Jobs in the American Private Sector
August private payrolls, or the ADP national employment report, revealed over 400,000 Americans found a new job during the month. Businesses of all sizes added jobs – small businesses added 52,000, mid sized businesses 79,000, and large businesses, the ones with over five-hundred employees, added 298,000. Therefore, the bulk of the employment in the private sector took place in large businesses, a sign of a strong comeback for the American corporations.
Another positive of the August ADP report is how the jobs were dispersed between sectors. The new jobs were created by the services sector (389,000), while the manufacturing sector only created 40,000 new ones in August.
It shows, once again, the discrepancy between the two sectors in the largest economy in the world and why it is important to remember this when interpreting the GDP release or the ISM Manufacturing and Non-Manufacturing surveys.
For example, if the ISM Non-Manufacturing (i.e., services) declines sharply, more than the market expects, it is likely to affect the USD more than a similar decline in the manufacturing PMI. Or, if the ISM Non-Manufacturing drops significantly but the ISM Manufacturing does not confirm the drop, and holds steady, the USD will reverse its losses and may even rise in the end. The United States is a service-based economy, just like most of the economies in the developed world.
The strong ADP report fueled stocks higher. It also fueled expectations that the NFP tomorrow will show similar performance.