Strong Private Sector Payrolls In January

Monthly private-sector payrolls from Automatic Data Processing (NASDAQ:ADP) for January posted their highest level this morning since May 2015, to a whopping 291K new private-sector jobs having been created last month. This is almost double the 150K or so analysts had been expecting. The previous month’s headline, itself a big upward surprise when first released at 202K, has only come down 3000 to a revised 199K.

The breakdown in type of job continues to advance Services over Goods, 237K to 54K, respectively. This amounts to job gains in service industries accounting for 77.3% of all new private-sector jobs in the U.S. last month. This bears out when we see the top two industries on the January ADP print, Leisure/Hospitality and Education/Healthcare, bringing in 96K and 70K new non-government jobs, respectively.

That said, Construction brought in a healthy 47K new private-sector jobs for the month. Manufacturing, which has been experiencing some difficult headlines in various metrics of late, still managed 10K for January. Medium-sized companies (between 50 and 499 employees) continued to lead the way last month with 128K positions filled, followed by Small firms with 94K and Large companies at 69K. These are strong figures, however you slice them.

The ADP report, of course, pre-dates Friday’s all-inclusive non-farm payroll report from the U.S. Bureau of Labor Statistics (BLS). Currently, expectations are for between 155-165K new jobs created for January, still well off today’s positive surprise from the ADP report. This follows a December BLS headline of 145K. Clearly, the BLS and ADP numbers are not aligned currently, though history shows they do tend to trend together over time.

One caveat ahead of Friday’s number, however, is a one-yearly change to benchmark BLS data scheduled to occur in the next report. Analysts have already warned there will be a downward revision to January’s numbers, which would further indicate the BLS results Friday morning will be significantly lower than today’s ADP surprise. Further, the Unemployment Rate is expected to stay unchanged at a half-century low 3.5%, while wage growth has stayed stubbornly low in the face of such a robust employment picture, only having grown 0.1% in the December report.

December’s Trade Deficit numbers also hit the tape ahead of the bell this morning, with a headline slightly worse than expected to -$48.9 billion. This follows a downwardly revised November read of -$43.7 billion. Though these numbers are not great, they are at least off the bottoming-out we saw back in December 2018, when our trade deficit sank to -$60 billion. Historically, there was no concern about the U.S. trade balance until about the 1980s, when borrowing to support a growing U.S. economy skyrocketed. This got much worse in the first decade of the 21st century.

Q4 and full-year 2019 results for Merck (NYSE:MRK) came out this morning, as well. The Big Pharma firm beat the Zacks consensus by 2 cents to $1.16 per share in the quarter, outpacing its full-year guidance of $5.12-5.17 per share by posting $5.19 for the year. Revenues of $11.9 billion in the quarter were slightly beneath the $12.1 billion expected (though still +8% year over year) whereas full-year revenues of $46.84 billion came within the company’s $46.5-47 billion range. Merck also discussed a spin-off this year which would bundle slower-growth products into a separate entity.