Layoff activity remains relatively low

New claims for unemployment have been relatively flat this year, down about 8% or so from year-ago levels. This is consistent with continued, albeit sluggish, economic growth. The Challenger tally of announced corporate layoffs (second chart above) tells a similar story. Nothing much happening here, but at least there's no sign of any deterioration in the economy.

If there is one bright spot in the labor market, it is the ongoing decline in the number of persons receiving unemployment insurance: 20% fewer people today (1.3 million) are receiving unemployment checks than were a year ago. This motivates people to find and accept a new job, even one paying less than they would have liked. In a slow-growing economy, this is unfortunately the only way that excess labor can be absorbed: the price of labor has to decline. Extended unemployment insurance payments only serve to slow that process.

ADP employment report only modestly positive

ADP has revised its methodology, and this appears to have improved the ability of its estimate of private sector jobs growth to predict the BLS establishment survey of jobs growth. This suggests that tomorrow's private sector jobs number could be modestly higher than expected (158K vs. 124K).

The first chart above is from last month (September data), before ADP changed its reporting and forecasting methodology. The second chart uses the new and revised data through October. To my eye, the new ADP series more closely tracks the BLS data, especially in the past year or so. If this holds up, then it means that tomorrow's jobs report should be somewhat better than expected. Even so, jobs growth of 160K is only enough to absorb new entrants to the labor market, and far short of what it would take to bring about a meaningful reduction in the unemployment rate. So I wouldn't expect another decline in the unemployment rate, and I note that expectations call for it to rise from last month's 7.8% to 7.9%.

The outlook for economic growth remains uninspiring, but the good news is that there is no sign of deterioration. But since the market remains braced for bad news, this dull news ends up being good news.

Manufacturing doesn't deteriorate, and that is the good news

The ISM manufacturing report came in slightly better than expectations, but remains lackluster. 

As the chart above suggests, the ISM manufacturing index is consistent with real GDP growth of 2 or maybe 3%. It's steady as she goes, and she isn't going very fast. Nothing new to see here.

Export orders continue to show some weakness, which is not surprising given the struggles in the Eurozone and the slowdown in China that have been widely remarked. Still, the recent readings are not weak enough to point to any serious problems, and the latest news from China—where the purchasing managers' index has been around 50 for the past several months—suggests that the slowdown has not worsened.

The prices paid index points to mild inflation pressures, nothing unusual.

The employment index has been only mildly positive for the past year. This suggests that manufacturing is not likely to pick up meaningfully nor deteriorate in coming months.

Add it all up, and it looks like the producers and risk-takers of the world have pulled in their horns in an attempt to brace for the uncertainty of the looming fiscal cliff. As a supply-sider I strongly reject the notion that the problem we have today is one of insufficient demand. On the contrary, the problem is insufficient "supply:" a dearth of new investment, risk-taking and work. Those are the things that create new jobs, and new jobs are the things that result in increased demand.

These facts do not paint a rosy picture of the future, but neither do they point to any meaningful deterioration on the margin. And that is the good news, since the market remains braced for bad news. 10-yr Treasury yields of 1.7% only make sense in a world where markets hold out very little hope for meaningful growth and indeed fear that another recession is practically unavoidable. As long as the economy avoids a recession, risk assets are going to continue to rise, albeit slowly.