INDICATOR: March Supply Managers' Manufacturing Activity, ADP Employment and Help Wanted Online
KEY DATA: ISM (Non-Manufacturing): -1.4 points; Employment: -1.4 points/ ADP: 189,000/ Help Wanted: +15,200
IN A NUTSHELL: "The economic-growth ebb and flow remains on the ebb side."
WHAT IT MEANS: Yes, first quarter growth is looking somewhat disappointing and nothing we saw today changes that expectation. The one bright spot has been payroll growth, but that too my have taken a siesta in March. Yesterday I warned that the normal volatility in the data could lead to a less than hoped for March job increase and the ADP estimate of private sector gains supports that concern. The projected rise is the lowest in a year as large businesses have reduced their pace of hiring. Why that happened is anyone's guess. It would have been more logical that the wicked winter slowed small business payroll growth. Instead, companies with less than fifty workers continued adding employees at a solid pace.
A softening jobs picture was seen in the Institute for Supply Management's March manufacturing survey. Activity moderated again as hiring flattened. Orders continued to grow, but here too, the pace softened. Even the one positive element of the report, a rise in production, looks to be in question as order books thinned for the second time in three months. In other words, this report points to continued but mediocre growth. Interestingly, a second report, the Markit Manufacturing Index, indicated a rebound in March. So we need to tread carefully as we parse the data.
One of the continuing trends in this current expansion is the inability/unwillingness of business to actually hire the people they need. While payrolls have been rising sharply, openings have been increasing even faster. That is likely to continue as the Conference Board's Help Wanted Online measure keeps rising. Of course there is on big headwind: Low energy prices have cratered demand for oil and gas extraction positions.
MARKETS AND FED POLICY IMPLICATIONS: Friday we get the March jobs report and gains should be okay while the unemployment rate should remain constant. But we could have an interesting reaction to a soft report if the wage number rises faster than expected. I expect to see that happen, but not until the April and May data are released. The Wal-Mart-related wage increases are not scheduled to take effect until April and many are slated for later this year or even the beginning of next year. Wages are going up, but not right away. With that in mind, a higher than expected wage increase would represent growing wage pressures that are related to strong underlying labor demand, not any announcements by a large company. So watch this number carefully. As for the markets, there are energy and international issues to be digested and the economic numbers don't point to strong growth. While the data imply the Fed will be in no rush to raise rates, they don't point to robust earnings growth either. That implies continued volatility.