Thursday, February 6, 2020
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The labor market and two service-sector readings impressed
Wednesday was a good day for the U.S. economy.
Just hours after President Donald Trump declared in his latest State of the Union address that the economy is "stronger than ever before," three pieces of data released Wednesday morning showed the economy has certainly steadied after its late-2019 swoon.
ADP's data on private sector hiring in January showed 291,000 jobs were created last month, the largest monthly gain for this data series since May 2015.
Mark Zandi, chief economist of Moody’s Analytics, said of ADP's data on Wednesday that, “Mild winter weather provided a significant boost to the January employment gain. The leisure and hospitality and construction industries in particular experienced an outsized increase in jobs. Abstracting from the vagaries of the data underlying job growth is close to 125,000 per month, which is consistent with low and stable unemployment."
JPMorgan economist Daniel Silver said Wednesday that while this report, "is not always a reliable predictor of the BLS data, [we] do think that the strength in today’s report adds upside risk to our forecast for the BLS data."
Friday's jobs numbers from the government are expected to show nonfarm payrolls grew by 163,000 in January.
Investors were also greeted by two better-than-expected readings on activity in the services sector, which accounts for about 85% of GDP growth.
Data from IHS Markit showed business activity in the service sector grew at a 10-month high in January while the Institute for Supply Management's reading on non-manufacturing businesses topped Wall Street expectations.
Anthony Nieves of the ISM said Wednesday that survey respondents were, “mostly positive about business conditions and the overall economy. Respondents continue to have difficulty with labor resources.”
Michael Pearce at Capital Economics said Wednesday that the ISM data, "provides further evidence that domestic demand growth is recovering." Pearce added that, "With the risks of a domestic epidemic from the coronavirus well contained, we expect economic growth to gradually re-accelerate over the course of 2020."
IHS Markit’s data also indicated the labor market is in good shape, with the report noting that, “the rate of job creation quickened slightly to the fastest since last July.”
Chris Williamson, IHS Markit’s chief business economist, said Wednesday that while the 10-month high for business expansion is an encouraging headline, "optimism about future growth across the business community as a whole continues to run at one of the lowest levels seen over the past decade."
Williamson also notes that most of IHS' data was collected before January 24, thus leaving out any impact from the coronavirus that could've shown up in the data and suggesting some downside risks to February’s numbers. The firm will publish its next reading on economic activity on February 21.
And while data pointing to an expansionary environment is a welcome reprieve for investors who had real concerns last summer that a recession was right around the corner, most economists agree that slower growth is the economy’s fate in 2020.
“Non-manufacturing activity is expected to maintain healthy momentum in 2020, though we believe that cooler employment trends, cautious business investment and softer consumer spending momentum will underpin a more modest pace of expansion relative to 2019,” said economist at Oxford Economics on Wednesday.
“Coupled with our call for sluggish manufacturing this year, we forecast that the economy will grow at a sub-potential pace of 1.6% in 2020.”
Just don’t tell that to the Atlanta Fed’s GDPNow tracker — that data on Wednesday indicated that first quarter GDP growth could hit 2.9%.
What to watch today
Challenger job cuts year on year, January (-25.2% prior)
8:30 a.m. ET: Non-farm productivity (+1.5% expected, -0.2% prior);
8:30 a.m. ET: Initial jobless claims, week ended February 1 (215,000 expected, 216,000 prior); Continuing claims, week ended January 25 (1.703 million prior)
6 a.m. ET: Dunkin’ Brands (DNKN) is expected to report earnings of 73 cents per share on $335 million in revenue
7 a.m. ET: Yum! Brands (YUM) is expected to report earnings of $1.15 on $1.67 billion in revenue
7 a.m. ET: Twitter (TWTR) is expected to report adjusted earnings of 28 cents per share on $994.49 million in revenue
4:05 p.m. ET: Uber (UBER) is expected to report an adjusted loss of 55 cents per share on $3.7 billion in revenue.
Other notable reports: Wynn Resorts (WYNN)
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