Market Matters
We saw a weak ADP number this week, which the market was expecting due to the latest Covid variant putting a pause to hiring. We also saw some hawkishness from both the Bank of England with another 0.25% raise in their rates, with some discussion of a few of their Committee members wanting a 0.5% increase in rates. The market is expecting a weak monthly jobs number and may ultimately not pay as much attention to the headline numbers. It seems the market is purely tuned in to inflation data for the time being and if we continue to see spikes in that data, the market will price in some extremely aggressive moves from the Fed.
Initial Jobless Claims
Initial Jobless Claims declined by -23k to 238k for the week ending January 29th vs. the prior week’s revised level of 261k (orig. 260k). The 4-week moving average for headline claims now sits at 255k, up from the prior 247.3k. This is the highest average in 11 weeks and the fifth consecutive increase after reaching a low of 199.8k in the week of December 25th. Continuing claims, which lag by a week, fell -44k to 1.628mln from a revised 1.672mln (was 1.675mln).
ISM Services
The ISM Services PMI fell -2.4 points to 59.9, while December’s print was revised up from 62.0 to 62.3. While January’s result was the lowest since last February, it’s still a strong headline read when considering the impact of omicron. Within the survey, companies complained about difficulty finding new labor, and some continued to suggest inflation concerns were growing, with construction industries noting that costs have escalated to what we believe are unsustainable levels. Also, available labor is basically nonexistent, yet most remained optimistic given the current demand levels. The most disappointing figure in the report was the overall business activity component, which fell from 68.3 to 59.9, now an 11-month low.
ADP Employment Report
The ADP Employment Report shocked markets this morning with a -301k drop in private payrolls for January vs. expectations of a +207k increase. Omicron is be blamed at the culprit here, lowering payrolls to essentially no growth in every major category. Prior months revisions were modest with November down another -9k to +496k and December down -31k to +776k. Most sectors in January saw their first declines since December 2020, with leisure and hospitality down -154k, trade/transportation/utilities down -62k, misc. services down -23k, manufacturing -21k, and education/healthcare -15k. Professional services only added +4k this month after seeing around +50k for the past three months. Overall, this doesn’t set up well for the BLS report on Friday morning, especially as the reference week for the January reports covers January 9th through January 15th, the week which saw the largest number of confirmed Covid-19 cases of the pandemic, 5.6 million. Additionally, there were 4.9 million cases officially confirmed during the preceding week.
ISM Manufacturing PMI
The ISM Manufacturing PMI came in at 57.6 for January, while December’s print was revised up +.1 to 58.8. January’s reading is still strong, but it is also the weakest since November 2020. The report for January noted challenges from omicron, which in turn, caused more supply chain and labor force issues. Of the 18 surveyed industries, only 14 of those reported growth, and 1 reported a decline in activity. Productions, new orders, and supplier deliveries all declined, with employment being the only positive contribution to the headline.
