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    ADP Employment Beats Forecast, Adds 214,000 Jobs

    Private payrolls grew more than anticipated in February as American firms kept their focus at home rather than on the turmoil in global markets. 

    Companies added 214,000 positions after a revised jump of 193,000 in January that was initially listed at 205,000, reported the ADP Research institute Wednesday. The median prediction was for 190,000 new workers. Over the past year ADP payrolls have averaged 206,000, that accelerated to 231, 000 in the last three months. 

    Job creation has been one of the unequivocal strengths of the labor market over the past two years and its steadiness has convinced the Federal Reserve that the economy can withstand the return to a more normal rate environment.

    Fed policy makers have repeatedly said that strong job growth and declining unemployment will foster an increase in wages that will help push the inflation rate back to the bank's 2 percent target.  

    Recent average hourly earnings data have supported this contention. Annual wage gains averaged 2.1 percent in 2013 and 2014, climbed to 2.3 percent in 2015 and were 2.4 percent in the last half of the year, the best six months since the recession. 

    Inflation has also begun to move higher.  The core consumer price index registered 2. 2 percent in January, following 2.1 percent in December and 2.0 in November. This is the first sustained move above the Fed’s 2 percent target since May, June and July 2012.  

    Though the Fed's preferred inflation gauge, the core personal consumption expenditure price index, (core PCE) has yet to reach 2 percent, it has jumped from 1.3 percent last October to 1.7 percent in January. This is the steepest rise since mid-2011 and the highest  this inflation rate has been since February 2013.  

    Wage expansion has also been counted to support the consumption that underpins 70 percent of the economy and has remained steady despite the volatility in equites since the turn of the year. 

    The Labor Department Employment Situation Report, more commonly known as Non-Farm Payrolls which will be issued on Friday is expected to show a February gain of 195,000 jobs, up from 151,000 in January and slightly under the 220,000 average for last year. Average hourly earnings are forecast to repeat their 2.5 percent increase. 

    The continued success of the U.S economy in producing jobs this year will give the Fed some comfort that the underlying economy can gloss over the recent turbulence in the equity markets.

    One of the rationales for the Fed’s policies of quantitative easing and a zero interest rate was to court the wealth effect of stocks, where a rising market makes people feel wealthier and thereby spend more in consumption. An unstated corollary of this concept was that a falling markets may inhibit consumer spending.  

    So far that has not transpired, though the quick rebound in equity prices may have obviated any negative effect. The Dow has lost 12 percent and regained 7 in a little more than two months since December 31st.

    In the ADP report goods-producing industries, include manufacturing and the building trades, increased overall employment by 5,000, but the bulk of the gain was in construction which added 27,000 jobs. Factories shed 9,000 jobs. That is consonant with the contraction in manufacturing shown in the ISM surveys. .

    Large companies employing 500 or more workers added 76,000 individuals in January. Medium-sized firms with 50 to 499 employees, hired 62,000 workers and small companies increased payrolls by 76,000. The skew of the positions was a bit unusual, normally small firms create the greatest number of jobs. 

    The ADP report is based on payroll information from businesses employing almost 24 million workers.  

    There are 244 million people in the United States of working age, of which 59.6 percent or about 145 million have jobs. 

    Joseph Trevisani

    Chief Market Strategist

    WorldWideMarkets Online Trading

    Charts: Bloomberg


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