Strong December payrolls
In December 2015, non-farm payrolls increased by 292,000, easily topping Wall Street’s estimate of 200,000. The monthly ADP National Employment Report predicted that the number would come in at 257,000. Note that ADP numbers are meant to forecast the final payroll number, not the advance number.
Private payrolls rose by 275,000, while government jobs rose by 17,000. Private services payrolls rose by 230,000, and manufacturing employment rose by 8,000. Construction employment continues to be strong, dipping slightly to 45,000. This is a good number when you consider that we’re in a seasonal slow period.
Increasing construction employment bodes well for homebuilders. Health and social services employment continues to experience the largest growth, driven by aging Baby Boomers.
Professional and business services employment rose from 21,000 to 73,000. The strong dollar has wreaked havoc on commodity prices, making things difficult for mining employment.
Bonds rallied on the report, although overseas weakness has been the dominant factor in bond trading lately. The ten-year yield fell from 2.14% to 2.11%. Investors interested in making directional bets on interest rates can look at the iShares Barclays 20+ Year Treasury Bond ETF (TLT).
Are builders adding inventory?
The first-time homebuyer is making a comeback. This is good news for builders such as PulteGroup (PHM) and D.R. Horton (DHI), which are big into entry-level housing. The big jump in construction jobs may indicate that builders are beginning to add some inventory. However, we’re heading into the seasonal slow period for builders, so any major plans will be more about 2016.
Luxury rentals remain a big growth factor for Toll Brothers (TOL), although there seems to be a lot of foreign money piling into that sector, as it’s a dollar play as well as a real estate play. Recently, Lennar (LEN) and KB Home (KBH) both reported good numbers.