After Scary Manufacturing Drop, This is the Number to Watch Wednesday

KEY POINTS
 
  • ADP is expected to show 140,000 new private sector jobs were added in In September.
  • The ADP payroll data is seen as a preview for Friday’s September government employment report, which is expected to show a total 145,000 jobs were added..
  • Strategists are watching the jobs data, particularly after ISM manufacturing data showed a surprise weakening and spurred speculation the Fed would cut rates again later this month.

Wednesday’s report of ADP private payrolls could give clues on the labor market, the next part of the economy to be scrutinized after an important manufacturing report showed an unexpected decline.

ADP is expected to show that 140,000 payrolls were added in September, following 195,000 in its report in August. That August number was not a good barometer for the much lower government report of just 96,000 private payrolls in August, but it will be watched nonetheless. Total payrolls were 130,000 in August, including government workers.

The ADP data is released at 8:15 a.m. ET Wednesday. The report comes right after a surprise drop in manufacturing activity that raised concerns of a manufacturing recession that could spread to the broader economy.

The ISM manufacturing survey for August declined to 47.8, its weakest reading since June, 2009. Stocks sold off sharply after the report Tuesday morning, and investors jumped into the safety of bonds.

“The jobs report is pretty much front and center in telling us where the economy is. Are we close to the cliff or not, as the ISM manufacturers seem to believe,” said Chris Rupkey, chief financial economist at MUFG. “The traditional rule of thumb for a recession…is two to three months consecutive declines in payroll jobs indicates a recession. We’re not there yet. We’ll see what happens.’”

Economists expect 145,000 total non farm payrolls Friday, including 132,00 private sector jobs.

Fed funds futures also moved sharply after the ISM report.

“We have the employment number on Friday and I think, when you look at this number in isolation, you’re seeing what you’re seeing: a 60% probability of a 25-basis point cut in October. That was closer to 40% before the manufacturing number. If we get a weak employment number on Friday, I think you’re going to see that probability for this month go up closer to 100%,” said Greg Faranello, head of U.S. rates at AmeriVet Securities.

Correction: This story was updated to reflect that fed funds futures moved sharply after ISM data.

By: Patti Domm