The ADP Employment Report for December is a gasper coming in at +297,000. This is the largest monthly increase in the ADP employment release in the history of the report. Small firms added 117k jobs, medium-sized firms added 144k jobs, and large firms added 36k jobs. The 10-year Treasury was trading at 3.30% prior to the ADP release but has since sold off to 3.40%, down almost a full point.
In addition to the strong employment report from ADP, the Institute for Supply Management’s non-manufacturing index also came in above expectations at 57.1 for December, the best reading since May 2006. As can be expected now, the prices paid component of the report rose from 63.2 to 70.0. New orders jumped from 57.7 to 63.0. However, the backlog of orders fell below the 50.0 hurdle rate to 48.5, a 3 point drop versus November. Employment dropped from 52.7 to 50.5, but remained marginally above the 50.0 hurdle rate. Given the strength in this report the 10 year note is continuing to worsen, now trading at 3.455%!
Finally, the FOMC released their December meeting minutes yesterday. Despite the better economic data, the FOMC is not ready to change their QE2 program saying that “nearly all committee members agreed to continue” with the program. They are disappointed that policy has not helped to bring down the unemployment rate yet. It appears from the minutes that the Fed will continue with QE2 so long as unemployment remains elevated, inflation does not become a concern, or growth does not pick-up well above trend.
Mortgage prices are worse today between .375% and .50%.
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