The Market Today

ADP: All Lost Private Sector Payrolls Now Recovered (After Revisions and Adjustments)

by Craig Dismuke, Dudley Carter


Revisions Fix Labor Market: The ADP report on private payroll growth, designed to project the BLS figures, showed job gains of 475k in February, a stronger-than-expected result. The bigger story, however, were the revisions.  January’s job growth total was revised up from -301k to +509k, more closely matching BLS’s estimate of 444k. However, ADP also applied “scheduled annual revisions” to their estimates of jobs growth, including “adjustments of historical job growth estimates consistent with the … U.S. Bureau of Labor Statistics’ annual benchmarking process.”  Recall the BLS changed their seasonal adjustment formula in the January jobs report dramatically skewing previous months’ results.  According to ADP’s revisions, the economy has now recovered all of its lost private payrolls.  Prior to the revisions, ADP showed 4.08 million private payrolls remaining unrecovered.

Fed Communications Key: Fed Chair Powell will testify before a House panel today at 9:00 a.m.  Given the escalation of the war in Ukraine, his assessment of the impact on monetary policy will be closely watched. Also speaking today are Chicago’s Evans (8:00 a.m. CT), St. Louis’s Bullard (8:30 a.m.).  The Fed will release it’s Beige Book report in anticipation of their policy meeting in two weeks (1:00 p.m.).

Discontinuing Coronavirus Chartbook Updates: Given that new cases in the U.S. are now at their lowest level since July and that the correlation between economic activity and case-counts has diminished materially, we are discontinuing the daily updates of our Coronavirus Chartbooks.  The last update from March 1, 2022 will remain available here: Vining Sparks Coronavirus Chartbook, Vining Sparks Coronavirus State Charts Additionally, we will continue to monitor the reported data at both the national and state levels and recommence updating the charts if the situation becomes economically relevant.


ISM Improvement Reflects Frictions Between Strong Demand, Constrained Supply: The ISM Manufacturing Index recovered more than expected in February, ending a run of three monthly declines that had pushed the headline PMI down to its weakest reading since November 2020. While the 1.0-point gain left the index at 58.6, its second-weakest reading since late 2020, the broader story of the report appeared to be one of continued friction between strong demand and constrained supply. New orders rose 3.8 points to a five-month high while supplier delivery delays worsened moderately (mathematically accretive to the headline). Combining a drop in employment with only marginal improvement in production, orders backlogs jumped to a six-month high. Prices paid dipped slightly to its second lowest level since November 2020.

Construction Spending Surprises Expectations with Strong Month, Positive Revisions: Construction spending was much stronger than expected in January and there were large positive revisions to data for both November and December. Total construction spending rose 1.3% to start 2022, handily outpacing the 0.1% expected gain. December’s 0.2% increase was revised up to 0.8% and November’s 0.6% improvement was adjusted to a stronger 1.0%. For January, residential spending posted another solid monthly gain while non-residential outlays resumed their solid recovery from the second half of 2021 that stumbled in December. The stronger residential spending was driven by single family categories, including improvements and renovations, while the gain for business structures was heavily concentrated in the manufacturing sector; most industries actually reported decreased spending. A solid month for government spending was primarily the result of the 13.8% jump in federal projects.

ICYMI – February 2022 Monthly Review: Markets entered February solely focused on the possibility that historic inflation pressures could force the Fed to tighten policy more aggressively, raising the risk of an unintentional policy mistake and economic slowdown. Halfway through the month, however, the outlook became increasingly complicated as a war of words devolved into a full-blown Russian military invasion of Ukraine. With investors now forced to balance rising inflation risk with greater downside risk for growth, stocks fell more than 3% as U.S. WTI crude rallied 8.6% and gold climbed 6.2%. Despite the inflation concerns, markets significantly pared expectations for how fast the Fed will tighten policy. Click here to view the full recap.


Yields Tumble in Risk-Off Trade that Takes Another Bite Out of Fed Expectations: Incessant escalation of the tensions and fighting between Ukraine and Russia rattled markets again Tuesday. Satellite imagery continued to show Russia reinforcing its existing troops with more manpower and military equipment and the country’s defense minister said the operation would not end until the mission was accomplished. Ukraine remained steadfast in fighting back against Russia’s onslaught and Western powers appeared steady in their resolve to support Ukraine’s efforts and cut off Russia from the rest of the world. Oil prices rallied sharply amid the worsening situation. U.S. WTI crude gained 8% to $103.41 per barrel while Brent jumped more than 9% to above $107, both market new highs since July 2014. The moves kept the S&P 500’s energy sector afloat amid a sea of red across other sectors. Cyclical sectors were the hardest hit and financials led all declines. The recent flight to quality has driven Treasury yields lower and forced investors to reassess their expectations for monetary policy, both generally negatives for financial institution margins. Just weeks after markets priced in the possibility of seven rate hikes this year, fed funds futures reflect an uncertainty around if there will even be five. The 2-year Treasury yield fell 9.2 bps to 1.34%, its lowest close since February 7. The 5-year yield led all declines, down 12.4 bps to 1.59%, the lowest level since January 25. The 10-year yield fell 9.8 bps to 1.73%, its lowest mark since January 13. Those changes were less than half of the declines seen across Europe, with most sovereign curves in the region sinking by more than 20 bps. An ECB official said Tuesday that “In this kind of a situation [in Ukraine], it’s usually better to wait with your decisions until your sight clears so that you avoid doing damage.”

While U.S. equity futures and Treasury yields reversed a portion of their Tuesday moves overnight, oil prices continued to climb on Wednesday. U.S. WTI crude traded above $111 per barrel, its highest mark since 2011, as Brent crossed above $113, both reflecting daily gains of nearly 8%. Stocks fell in Asia but Europe’s Stoxx 600 bounced back 0.3%. U.S equity index futures recovered between 0.2% and 0.4%. Treasury yields erased a drop in Asian trading and were moving higher ahead of ADP’s estimate of private payroll gains in February, reaching new session highs following the better-than-expected results. Shorter yields led Wednesday’s rise as fed funds futures reversed a portion of yesterday’s flattening. The prepared portion of Fed Chair Powell’s testimony later this morning were released at 7:30 a.m. CT, showing the Fed chief will tell a House panel that a rate hike in March remains on track and that the impact on the U.S. economy of Russia’s invasion of Ukraine remains “highly uncertain”.  The 2-year Treasury yield rose 8.3 bps to 1.42% around 7:30 a.m. and the 10-year yield added 4.6 bps to 1.77%. Those moves, once again, trailed changes in European sovereigns. Preliminary data showed inflation in the Eurozone rose 0.9% MoM, firmer than the 0.8% increase economists expected. Annual core inflation accelerated from 2.3% to 2.7%, outstripping the expected pace of 2.6% and marking another record-high reading.

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