Today provided four bits of data to help us analyze the labor situation. Tomorrow’s Employment Situation Report now seems more likely to confirm today’s signs of current strength. The data in each of these reports provide the same message. The current state of employment is strong and tight. This means the economy was likely supported by the consumer again in the second quarter. Despite all this support, we continue to anticipate a different future.

ECONOMIC DATA & ANALYSIS

ADP Employment Report

ADP Employer Services reported a 150,000 private sector employee increase in June, well above the estimated 100,000 consensus, as compiled by Bloomberg. Some 163,000 jobs were reportedly added within the service sector, while goods producing firms shed some 13,000. Wow! While over the long-term, this indicator has failed to accurately forecast the Employment Situation Report it precedes, it has done a relatively good job at predicting it since being tweaked more recently. Also, if it’s been off, it has been short of the Employment Situation measure. So, you can expect economists to busily up their estimates for tomorrow’s data.

Though at first blush this seems to disagree with the “Greek’s” forecast, read our last weekly report, and you’ll see things clearer. We are looking for the economy and inflation to drive near-term concern at the Fed. If labor heats up, inflation pressure remains, and the market will likely boost yields and anticipate a greater potential for a rate hike. This is eventually negative for stocks.

Within our weekly article, we discussed our view for the very short term to the long term. We said, the market would likely look forward to the coming earnings season and rise into it as the Dow superstars of last quarter prepare to report again. Recall last quarter’s strong earnings reports from the likes of Caterpillar (NYSE: CAT) and Honeywell International (NYSE: HON). However, a seemingly steaming along economy, and inflation concern, would bring Fed hawkishness to a peak, and potentially drive a premature rate hike, in our view.

Finally, we anticipate that over the long term, either consumer softness due to inflation and cost of living pressures, and/or war with Iran and potentially others, would hurt the economy and place the Fed in position to cut rates. A condition of stagflation could persist at that time, handcuffing the Fed and causing a great loss of confidence in it from the market. So, basically our forecast has the market moving higher, then down, and depending on how bad things get, down further before recovering. Where are you going to find that kind of detail, outside of this independent and ballsy resource?

Weekly Initial Jobless Claims

Jobless claims increased to 318,000 in the week just passed, exceeding consensus estimates for an increase of 315,000. We took note of the trend in the four-week moving average, which has now risen six weeks in a row. A sign that unemployment is rising, the number of unemployed collecting benefits after the first week of collection, rose 84,000 to 2.57 million. Tomorrow’s unemployment rate is expected to measure 4.5%, and we agree, though we see it rising over time.

Challenger Job-Cut Report

Data within the ADP report showed that small and mid-size companies did most of the hiring in June. This makes perfect sense, as smaller companies grow faster, and many large companies find themselves consolidating operations or moving labor to lower cost of production regions of the globe.

As a result, we were surprised to see the Challenger Job-Cut Report post a figure so far below last month’s number. Announced corporate layoffs measured 55,726 in June, versus 71,115 in May and 70,672 in April.

Monster Employment Index

Monster’s reading on job availability as measured by online advertisements, showed a tight labor market. The measure of 186 matched May’s reading, and is ominous sign for labor cost driven inflation.

The information from the combined four reports seems to paint a picture of a still healthy labor market, one in which inflation can be expected to persist. It also indicates the economy should be supported by strong employment and that consumer spending may yet have some support.

You know where we stand on this. Consumer spending has only just begun to show signs of stress. We were very surprised to see service sector jobs rise so much, but maybe there was benefit from seasonal demand at recreational parks and resorts, where business picks up after Memorial Day. The report does not appear to be seasonally adjusted as far as we can tell, so this could be the explanation.

Institute for Supply Management’s Index of Nonmanufacturing Businesses

The ISM Nonmanufacturing Index posted a stronger number than anticipated, measuring 60.7 in June, versus 59.7 in May. Again, this provides a view of economic recovery, not decline. This should keep the Fed hawkish, and we suspect encourage a few votes for rate hike soon enough. Today, the market seems to be confused as to whether to exhibit enthusiasm for a recovering economy or concern for rising interest rates. We suspect that the deciding factor in the short short-term, keeping the market bullish, will be excitement about the Q2 earnings season with analysts’ bar set low once again. Enthusiasm about consumer supports could help the struggling consumer discretionary sector rebound a bit, including names like WalMart (NYSE: WMT) and Target (NYSE: TGT). In the long run, we think this will prove to be a move based in error.

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