Stocks Higher on Positive Job Numbers

A favorable labor market reading adds to the optimism at the conclusion to the midterm elections. Hard to tell how long the mood can be sustained, but historically the post-midterm period has been a good one for stocks.

I will leave the elections and its impact on the market/economy to others and focus instead on this morning’s October jobs report from payroll processor ADP (ADP), which is basically a preview of the Friday jobs report from the government’s Bureau of Labor Statistics (BLS). The ADP read came in better than expected at 230K, the 7th straight month of job gains in excess of 200K. Importantly, the tally for September was revised higher. Except for the June ADP tally of 297K, the October jobs are the highest monthly total for the ADP report this year.

The consensus expectation for Friday’s BLS report is for ‘headline’ gains of 240K, which includes government jobs that have been averaging 5K to 10K per month lately. As such, today’s ADP report is essentially in-line with current BLS estimates, though the two reports can divert in a big way from each other at times. This was particularly the case a couple of months back when the two reports were far off from one another in August, though that month’s gap has since been narrowed a bit in subsequent revisions.

[Read: What Leading Sectors Can Tell Us About Market Tops]

Today’s ADP report showed broad-based gains, with small businesses adding 102K jobs, medium-sized businesses adding 122K and large businesses adding 5K. The goods producing sector added 48K jobs in October, with construction adding 22K and manufacturing adding 15K in the month. The service sector added 181K in October, up from September’s 176K, with professional and business services producing strong numbers.

The service-sector ISM report coming out a little later today is expected to confirm these strong job gains from the sector. The consensus expectation is for the index to modestly pull back from the prior-month’s level, but its elevated level will still represent a healthy pace of expansion in the service sector of the economy.

In terms of market impact, this report reconfirms what we have known for some time – that the U.S. economic growth is looking up even as the outlook for the rest of the world is coming down. We know that international growth worries were a big contributor to the stock market pullback early last month; we have been seeing weak headlines out of Europe, China and elsewhere in recent months. As such, more evidence along the lines of what we got in today’s ADP report and will likely see in Friday’s government jobs report are welcome, but they are no substitute for sustained growth all over the world.

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