Good News for U.S. Labor Market - Analyst Blog
January 05 2012 - 4:14AM
Zacks
Positive domestic data and the resumption of Europe-centric
negative headlines will be pushing stocks in opposite directions
today. France held an overall successful bond auction, though
yields inched up a bit. But Euro-zone worries are getting focused
on the region’s banks, which need to tap the capital markets to
spruce up their battered capital positions.
The Spanish government announced that the country’s banks need
to raise €50 billion in fresh capital, while Italy’s UniCredit was
forced to offer steep discounts in its bid to raise to €7.5 billion
in equity capital. Wednesday’s modestly positive stock market
finish despite no shortage of Euro-zone issues holds promise that
the market may be able to eke out further gains today on the
strength of reassuring domestic news flow.
The focus on the domestic front shifts to the labor market
today, where we saw two better-than-expected readings this morning
in the weekly Initial Jobless Claims and the December National
Employment Report from payroll processor, Automatic Data
Processing (ADP).
The ADP report came in significantly better than expected, with
325K jobs created in December, almost double the expected 175K
level. The prior month's tally was modestly revised downwards to
204K from the originally reported 206K level. The ADP report is
supposed to serve as a preview of the official monthly jobs numbers
from the Bureau of Labor Statistics (BLS) that comes out this
Friday.
Today's ADP report is way ahead of market expectations for
private-sector jobs in Friday's BLS report. If the ADP report is
any indication of things to come on the labor market front, then we
will likely get a blockbuster number on Friday. We have to keep in
mind, though, that ADP's track record in foretelling the BLS
numbers on a month-to-month basis is less than perfect. We will
have to wait till Friday to know the forecast accuracy of today's
report. Overall, though, this report is expected to cause
expectations for Friday's BLS report to go up.
The Jobless Claims data also came in better than expected, with
initial claims dropping by 15K in the last week of 2011 to 372K.
The prior-week’s tally was increased by 6K to 387K from 381K. The
four-week average dropped by 3.2K to 373.2K.
The continued drop in Jobless Claims in recent weeks and today’s
strong ADP provide unmistakable evidence of an improving U.S. labor
market. Naysayers will likely question the unusual strength in this
morning’s ADP reading, citing similar strength in this series in
December in the last two years. In fact, the December ADP readings
were the strongest monthly gains in 2009, 2010 and now in
2011.
That said, the ADP strength is not some isolated and outlier
data that is uncorroborated by other reports. The downtrend in the
weekly claims data aside, we saw similar strength in the employ
component of the December manufacturing ISM survey. And today’s
non-manufacturing ISM report, coming out a little later, is
expected to show a similar positive trend.
The bottom line is that the strong ADP reading may be due to
seasonal corporate bookkeeping. But it nevertheless reflects the
same developments that we are seeing in other economic reports as
well.
In corporate news, we have a negative earnings
pre-announcement from Tesoro (TSO), with the
independent refiner citing a weak margin environment in
California.
The Children’s Place (PLCE) also lowered
its outlook for the fourth quarter, with aggressive markdowns and
high apparel costs weighing on earnings. Seagate
Technology (STX) guided higher, while Eastman
Kodak (EK) appears to be readying itself for a bankruptcy
filing.
AUTOMATIC DATA (ADP): Free Stock Analysis Report
EASTMAN KODAK (EK): Free Stock Analysis Report
CHILDRENS PLACE (PLCE): Free Stock Analysis Report
SEAGATE TECH (STX): Free Stock Analysis Report
TESORO CORP (TSO): Free Stock Analysis Report
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