Lots of hoopla today about the "blowout" ADP employment report. Yes, it greatly exceeded expectations (+263K vs +185K), but lost in the shuffle was the fact that the prior month's number (+298K), which was a true blockbuster, was revised down to +245K. As the chart below shows, what we're left with is nothing out of the ordinary. The economy is still on a moderate growth path, but it is probably getting stronger bit by bit, thanks to a revival in the manufacturing sector.
As the second chart above shows, there has been a burst of employment growth in the manufacturing sector in recent months. This is where the strength in the ADP comes from. It also corroborates other reports that show manufacturing is rebounding after sustaining an oil patch-related setback.
As the chart above shows, the service sector—which employs almost 10 times as many workers as the manufacturing sector—shows only modest improvement over the past year. It's too early to get excited about substantially stronger growth in the broad economy. There's excitement in manufacturing, but it's a very small piece of the GDP pie.
Service sector industries do not have particularly impressive hiring plans, as the chart above suggests.
Nevertheless, it's still the case that the economic fundamentals have improved somewhat over the past year, particularly in the Eurozone, which had languished for a long time.
In order to get really excited, we're going to have to see Trump pull off a significant reform of the U.S. tax code. I'm still optimistic in that regard, but it's not going to happen soon.
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