As it is accustomed, two days before the NFP report, the market participants find out what the private payrolls numbers are. While not a gauge for the overall jobs market in the United States, the private sector offers a clue about the trends in employment.
The report massively missed expectations. The forecast showed that economists expected the private sector (everything accepting the government and the farming industry) to add +60k new jobs. The reality, however, disappointed – the sector lost -123k jobs.
Will the NFP report on Friday show something similar?
December ADP Misses Expectations
The bulk of the jobs lost in December came from large companies with 500 employees or more. These companies slashed -147k jobs in December as the pandemic worsens.
Companies in the services sector were forced to lay off the most employees – over 100k of the jobs lost came from the services sector. This represents a major problem moving forward because the United States is a service-based economy, meaning that the services sector has a bigger contribution to the GDP than, say, the manufacturing or construction sectors.
The weak ADP report erases the positive employment data shown by the ISM Manufacturing report a day earlier. Because services matter more for the overall economy, the chances are that the recovery in manufacturing jobs is only temporary.
Unsurprisingly, the leisure and hospitality industry suffered the most – almost 60k jobs were lost here. The pandemic continues to take its toll, both in the number of lives and jobs lost.
As usually during the pandemic, the markets did not react the way they were supposed to. In pre-COVID-19 times, such news alone could trigger a nasty stock market reaction. This time, the market held impressively and even rallied to new all-time highs after the cash opened.
Once again, the market focused on something else and continues the decoupling from economic reality. This time it was the prospect of the Democratic party winning the Senate that sent the stocks higher. Why? Well, one of the first things that the market expects from the Democrats is a new stimulus. Suddenly, the $600 checks that Americans receive will become $2,000. With the new majority, the Democrats have the power to pass legislation easily and thus do not depend on Republicans anymore.
In the meantime, jobs are lost. Should the NFP confirm the weakness in the labor market, the stock market is due for a crude awakening.