U.S. large cap stocks continued their beginning of the year descent despite good news from ADP on private sector hiring in December. At mid-day on Jan. 6, the S&P 500 was down 1.12%. The Dow Jones Industrial Average was also lower, down 1.31% led by losses from Chevron (CVX, Financial) and Apple (AAPL, Financial).
In ADP’s National Employment Report, the company showed private sector employment increasing by 257,000 jobs in December. This was substantially higher than economists had predicted at 190,000.
December’s ADP data showed a total private sector payroll increase of 0.21% with hiring in the services sector continuing to dominate over the production sector. Services sector hiring increased 0.23% in December, while hiring from production companies increased 0.12%. Adding the majority of services sector jobs in December, the professional and business services industry increased hiring by 0.33%, while financial service companies increased payrolls by 0.16%.
Among the production sectors, construction showed a substantial increase in December hiring, adding 24,000 jobs for a monthly increase of 0.38%.
Wednesday’s services sector report from the Institute of Supply Management showed improved activity in the services sector consistent with the substantial hiring growth. ISM’s non-manufacturing report was steady in December, posting a slightly improved result in the composite Non-Manufacturing Index down 0.6%. In the NMI’s sub-sector index measures, business activity, new orders and hiring were all higher, while prices continued to trend lower.
While improvements in activity were moderate overall in the sector, lower cost pressures appear to be the main catalyst for hiring. Across the sector reduced expenses primarily from lower fuel and transportation costs have been a key factor affecting payrolls.
The private sector report, often a preview of the Bureau of Labor Statistics’ Employment Situation report, could indicate that U.S. businesses have a more positive outlook for 2016 than previously expected. Economists are calling for an increase of 200,000 jobs in the Bureau of Labor Statistics’ report on Friday, with the unemployment rate expected to be within a range of 4.9% to 5%. Further upward trending in employment could also be a continued catalyst for additional federal funds rate increases by the Federal Reserve in 2016. Raising the federal funds interest rate by 0.25% in December, the Federal Open Market Committee is likely to continue with subsequent increases, potentially at its next January meeting.
