Market Insider

President Trump should like what's in Friday's jobs report

Will the jobs report provide a new reason to buy stocks?

When it comes to jobs, there's nothing President Donald Trump has wanted to see more than a revival in manufacturing jobs.

Economists believe he is getting his wish, though the improvements in activity were in motion before he was elected. Better manufacturing hiring showed up in the fourth quarter and continued to appear in the first quarter.

Friday's government employment report is expected to show a total 180,000 nonfarm payrolls were added in March, and positive sectors should include some of those that had been drags, such as manufacturing and mining, which includes oil and gas production.

An average of 19,000 manufacturing jobs were added in the three months through February, and that is the best three months for hiring by manufacturers since late 2014, according to government data. The sector lost an average 1,333 jobs a month in 2016.

But ADP's private sector payroll data, which includes March, is even stronger. It shows an average of 31,000 jobs a month were added in the first quarter, the best three-month period in the history of the data series, going back to 2006.

March jobs cuts up 17%: Report

"I think we're probably seeing the best of the growth [in manufacturing] right now. We had a really good past three months and probably have a good solid three months to go. I think by the end of the year, it will be softer," said Moody's Analytics Chief Economist Mark Zandi, who added that he doesn't expect a decline, just a slowing rate of hires.

Economists are expecting the unemployment rate to remain at 4.7 percent for March, and average hourly earnings are expected to rise 0.2 percent, according to Thomson Reuters.

"Manufacturing is healing. It should be healing. It's a shadow of what it was. The manufacturing sector, after being bludgeoned last year, is coming back. That's good, but it's not booming," said Diane Swonk, CEO of DS Economics. Swonk said more manufacturing jobs in the mix could also mean higher wages, and there could be an upside surprise to the 0.2 percent growth expected in average hourly earnings.

"Going from positive to negative alone is huge. You don't even need big gains. It just stopped being a drag. The steel industry is starting to come back. Mining has bottomed as well," she said. Swonk said the increase in U.S. rig count, which started rising with higher oil prices, has resulted in an increase in oil production activity, and that has ripple effects into steel and other sectors, like trucks.

Robots and job creation

Of the 235,000 jobs added in February, 28,000 were in manufacturing, a sector that had added only 7,000 jobs year-over-year. There were 8,000 mining jobs added that month, bringing total hiring in the sector to 20,000 since it hit a low in October.

"The trade balance is stabilizing and we're starting to export a bit more. The global economy is on firmer ground. The value of the dollar is more stable. Manufacturing took it on the chin when China stumbled and the dollar rose," said Zandi. He noted that the trade-weighted dollar gained 15 percent between mid-2014 and mid-2015, which had repercussions on trade and corporate profits.

"The economy has stabilized, and the dollar found its footing. That's reflected in better exports, better trade balance, and that's been a big plus for manufacturing," he said.

Zandi said there was a reversal of an earlier big increase in product inventories that stalled manufacturing activity. Another positive has been the surge in auto sales last year. Economists, however, believe those sales have peaked after cresting at an annualized selling pace above 18 million vehicles in late 2016.

"They're weakening now, so as we move through the year, that's not going to be the source of growth. It's not going to be the source of new jobs, as it has been. Sales have peaked," he said.

Construction has been a strong area for hiring, with 177,000 jobs added in the past six months according to government data. The last three months were the best period for hiring since the 2006 housing boom.

Construction and manufacturing are classified as goods-producing jobs by ADP. "That is a big turnaround. Goods-producing [industries] were losing lots of jobs a year ago. They're adding jobs. That's why the [government] jobs numbers are holding up as well. The services numbers have been doing what they're doing," said Zandi.

"It is kind of interesting from the political angle. That's where Trump is focused: coal, mining, energy. If you look at that today, it's working. There's a difference between causation and correlation," he said.

Zandi, whose firm crunches ADP's payroll data using ADP data, said he expects to see a strong non-farm payrolls number, above 200,000 jobs. ADP reported 263,000 in its private sector payrolls report Wednesday, but a number of Wall Street economists said they were retaining their much lower forecasts because of potential weather impact in the government data.

JPMorgan economists said they were expecting 140,000 payrolls, and UBS said they are expecting 155,000. Goldman Sachs economists expect 170,000 payrolls, and say that their forecast could have been 30,000 to 60,000 higher were it not for the winter storms in March.

Zandi said one of the differences in the ADP data, is that it counts as employed those workers who are on the payroll but can't make it to work due to weather. The government data, however, will not count a worker who does not show up to work for a week due to weather, if they are not paid.