Private Sector Adds Jobs, Midwest Manufacturing Stumbles

Laura Buckman/Bloomberg via Getty Images

By Richard Leong

NEW YORK -- U.S. companies hired workers at a solid clip in September, but data showed factory activity in the Midwest contracted, muddying the economic picture for the Federal Reserve on whether to raise interest rates later this year.

U.S. private employers added 200,000 jobs in September, payroll processor ADP (ADP) said Wednesday, the strongest reading since June. It beat a forecast 194,000 increase among economists polled by Reuters.

Private payroll gains in August were revised down to 186,000 from an originally reported 190,000 increase.

The U.S. central bank's policy-setting group, the Federal Open Market Committee, decided against ending its near zero interest rate policy in September, citing concerns about global risks and market turbulence stemming from China.

In recent days, several top Fed policymakers including Chair Janet Yellen have said the Fed could raise rates later this year if the economy shows further improvement.

"As for the FOMC reacting to this report, the market can continue to view them as the suitor wondering why it should matter when he gives the engagement ring as long as she knows they are eventually going to be married," Steve Blitz, chief economist at ITG in New York.

Interest rates futures implied traders see a 11 percent chance the Fed would raise rates in October and a 39 percent chance it would do so in December, according to CME Group's FedWatch program.

The latest ADP data supported expectations for private and government jobs gains to be reported by the U.S. Labor Department at 8:30 a.m. Friday.

Economists polled by Reuters expect Friday's report to show U.S. employers hired 203,000 workers in September, improving from August's 173,000 increase which was the smallest in five months. The unemployment rate was forecast to hold at 5.1 percent, a near 7½ year low.

"If we are able to hold on this type of jobs growth, the odds are pretty good we'd be back to full employment in the summer of 2016," Moody's Analytics chief economist Mark Zandi told reporters on a conference call.

Moody's Analytics jointly developed the private jobs report with ADP.

U.S. stocks rose partly on the better-than-expected ADP data, while Treasuries prices stayed in negative territory and the dollar tacked on earlier gains.

Midwest Factory Slump

As the labor market seemed to hum along, manufacturing activity in the Midwest took an unexpected downturn as a strong dollar and weak overseas demand have hurt U.S. exports.

The Chicago Purchasing Management Index fell in September to 48.7, its weakest since May, from August's 54.4. Economists polled by Reuters had forecast a reading of 53.

A reading below 50 suggests the Chicago-area factory sector is contracting despite strong vehicle demand.

A manufacturing gauge on the upper Midwest region fell to its lowest level since 2009.

Marquette University and the Institute for Supply Management-Milwaukee said its regional business barometer fell to 39.44 in September from 47.67 in August.

"In aggregate, growth still looks strong to keep the unemployment rate trending down," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

• The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
  1. Gross Domestic Product
• The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
  2. Consumer Price Index
• The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
  3. Unemployment Rate
• The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
  4. Trade Deficit
• Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
  5 & 6. Personal Income and Personal Spending
• Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
  7. Consumer Confidence
• The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
  8. Housing Prices
• Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
  9. Leading Economic Index
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