The December Jobs Report Could Be a Massive “Beat”

Stocks fell this morning as the market continued chopping sideways. The Dow, S&P, and Nasdaq Composite all tumbled, erasing yesterday’s gains. Stronger-than-expected employment data plunged stocks lower ahead of tomorrow’s jobs report.

ADP reported today that the US economy added 235,000 jobs last month, beating the 153,000 job estimate with ease. Wages, which still increased, saw their slowest growth since March 2022. This provided a slight silver lining for bulls (as rising wages threatened to spike inflation again), but the eye-popping payroll gain was enough to hammer stocks lower.

“While we will get a better overall picture of the jobs market tomorrow, private payrolls beating expectations and jobless claims coming in below are indications that the labor market remains resilient,” explained Morgan Stanley’s Mike Loewengart.

“These come on the heels of big-name companies announcing sizable job cuts so there is no doubt the market’s pressures are weighing on companies, but it remains to be seen when hiring will slow demonstrably.”

It should be noted that ADP has vastly underestimated the last five jobs reports.

Will lightning strike again? It certainly could. And, if it does, stocks could scorch lower still.

“The labor market is strong but fragmented, with hiring varying sharply by industry and establishment size. Business segments that hired aggressively in the first half of 2022 have slowed hiring and in some cases cut jobs in the last month of the year,” Nela Richardson, ADP’s chief economist, said.

As we observed over the last year, full-time job havers are being replaced by people with multiple, presumably less-desirable jobs. This was reflected over the last nine months of jobs reports, in which a gap formed between workers added and payrolls added.

ADP’s data for December showed that job-stayers only saw their wages grow 7.3% annually vs. job-changers, who enjoyed a whopping 15.2% increase in pay year-over-year. Talk about an incentive to search for greener employment pastures.

Overall, the continued labor market chaos suggests that we’ll see slowed wage growth (bullish) tomorrow opposite another big jobs number (very bearish) while unemployment holds steady at 3.7%. Stocks should fall if this is the case, especially after yesterday’s FOMC minutes confirmed the Fed’s hawkish stance for 2023.

“Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time,” the minutes read.

US labor was described as both being “tight” and “very tight” by FOMC participants. ADP’s data release this morning did little to suggest otherwise. And, if the jobs report beats the ADP data again, the Fed should continue to view labor the same way for at least another month.


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