ADP and Purchasing Managers' Indexes point to higher payrolls

• Private payrolls from ADP triple expectations in January.
• Service Employment PMI reached the best level since February 2020..
• Manufacturing Employment PMI is the highest since June 2019.
• Nonfarm Payrolls for January forecast at 50,000 after -140,000 in December.

If it is up to the managers in charge of the hiring rather than the analysts, US job creation could return with a bang in January.

Private payrolls for the clients of Automatic Data Processing (ADP) added 174,000 employees in January far more than the 49,000 projection and December's 123,000 loss was reduced by more than a third to -78,000.

ADP Payrolls

Purchasing Managers' Indexes

Some of the managers whose companies use ADP's services were no doubt among those surveyed by the Institute for Supply Management for their monthly Purchasing Managers' Indexes (PMI).

Employment surveys in the service and manufacturing sectors, which ask about hiring plans, rose sharply in January and the December results were revised higher.

Manufacturing Employment PMI, released on Monday, registered 52.6 in January, up from the revised 51.7 (originally 51.2) in December and the best reading since June 2019.

The Services Employment Index came in at 55.2, its highest level since February 2020 and a leap from its 49.7 forecast and December's revised 48.7 (initially 48.2).

Overall the reports were highly expansionary. Manufacturing completed its eighth positive month, though it dropped to 58.7 from 60.5, and is having its best run since June 2019. New Orders dropped to 61.1 from 67.5 but here too, the 63.2 average of the eight months to January was the best in over a decade.

The Services Index climbed to 58.7 in January its highest score since November 2018. New Orders rose to 61.8 from 58.6, also its eighth month of robust expansion.

Business investment

Executives have been anticipating the end of the pandemic, at least as a source of business restrictions, and a surging recovery for more than for six months.

Not only have attitudes remained positive through the fall and winter even as COVID-19 counts rose across the country but businesses have spent to be ready for the pending economic expansion.

Nondefense Capital Goods ex-aircraft, the business investment proxy category of Durable Goods, averaged 1.62% from July through December. The months of the fourth quarter dropped to 1.07%, but considering the spiraling viral counts at that time and California's lockdown in December, the spending was a solid vote for recovery.

Nondefense Capital Goods

Initial Jobless claims

Claims are a caveat to the optimistic PMI view of the economy.

Skyrocketing requests for unemployment benefits presaged the collapse in payrolls in March and April and a modest rise in December prefigured that month's decline.

From November to December unemployment filings jumped from 740,500 to 837,500. Nonfarm Payrolls shed 140,000 positions in December, the first loss since April.

Initial filings have continued to rise in January. The average of the first four weeks is 867,750. If the 830,000 forecast for the final statistic is correct the average drops to just 860,200.

Conclusion

The claims and PMI data compared above look in two directions.

Initial Jobless Claims, though recent, reflects management hiring and firing decisions made in December and early January. Attitudes in the PMI survey, though polled in the first two-weeks of January, anticipate conditions into the next quarter.

The optimism expressed in the managers' indexes mirrors the hiring in the ADP payrolls. The odds for a positive surprise in the January Nonfarm Payrolls have shortened considerably.