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Is the US Job Market Beginning to Overheat?

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Hiring remains hot across most sectors

The ADP December jobs report was published on January 4. The ADP report, which offers insight into US employment, is prepared by ADP, a human management solutions provider, in collaboration with Moody’s Analytics. This report gives us a breakdown of the change in employment by industry and by company size.

Mark Zandi, the chief economist at Moody’s Analytics, commented that the employment market in the US remained robust. He said that the job market ended the year on a strong note and predicted that the labor market could get even tighter and could overheat in the future.

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Sectors that improved in December

According to the employment report, job growth was robust across all the sectors except for the information (VGT) sector, which saw 4,000 job losses in December and over 50,000 job losses in 2017. Job growth has been solid for the business and professional services sectors (IYG) both in December and for the entire year.

The highlight for 2017 is the goods-producing sector, which includes manufacturing, construction, and natural resources and mining, has added more than half a million jobs, a very positive sign for economic growth. In December, construction (TOL) jobs increased by 16,000 jobs and manufacturing (XLI) jobs increased by 9,000 jobs.

Key takeaway from the ADP report

ADP reported that 250,000 jobs were added in December, which is above the consensus estimate of 191,000 jobs. The Bureau of Labor Statistics (or BLS) predicted 190,000 new non-farm jobs. A positive surprise from the employment report could boost investor optimism. However, with no expectation for rate hikes until at least March, the impact on markets (SPY) could be limited. The concern here could be if the job market gets overheated, the Fed could be forced to increase rates faster than expected.

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