Bullish US and EU data as we wait for the US jobs numbers

Quick post here

We got more ISM numbers from January today. And the figures were above expectations. ISM’s US Composite PMI came in at 53.3 vs the 53.1 that was forecast. And the Non-Manufacturing PMI from ISM came in at 55.5 vs 55.0 expected. Overall, I would agree with Neil Irwin that, with ISM, we’ve seen “[s]trong numbers on both manufacturing and services ISM this week, with jobs numbers due up [Friday] morning.”

The one weakness is jobs, of course. As I’ve been pointing out, although the job picture is still relatively bright, peaks in the gains in 12-month rolling non-farm payrolls and average hourly earnings are months in the past. The same is true in terms of job openings. So, while the labor market has continued to tighten, first derivative statistics would tell you that job and wage growth have peaked for the cycle.

I am hearing mixed commentary about what people expect from the Friday jobs number. If you look at the employment sub-index for the manufacturing ISM, it was 46.6. And although that was better than December, it’s below 50, which suggests employment is falling in the manufacturing companies ISM tracks. In terms of the larger services sector, though the employment number from ISM was good at 55.2, it was lower than the prior month’s 55.5.

Right now, the forecast is for a net add of 160,000 to non-farm payrolls and an unemployment rate unchanged at 3.5%. I don’t have a good feel for whether that number is too low or too high and how the market will respond to a miss on either side. But ADP posted a massive 291,000 net add for January private sector jobs today. The correlation between ADP and official numbers is poor though. Analysts are saying that the benchmark revisions coming in Friday’s numbers will be to the downside. So, many are expecting a miss in that direction.

My own view here is that the ISM numbers confirm the view that the US economy is in good shape right now, putting it in a relatively good position to withstand a coronavirus shock. I should also mention that Markit’s Eurozone and UK PMIs came out today also to the upside. So, Europe too is in a good position as 2020 starts. There are a lot of bearish views out there, suggesting recession is just around the corner. Frankly, I don’t see it.