A Bright Light in a Dark Room

Manufacturing activity turned up again last month, the Institute for Supply Management reported yesterday, offering the first statistical review of August's economic profile. The crowd was pleased: stocks soared and bond prices fell. But the bigger test of the trend in August comes tomorrow, when the government's payrolls report for last month is published.

Meantime, manufacturing's recovery is now well established. According to ISM, last month's rise in the sector's activity is the 13th consecutive month of growth. But the connection between manufacturing's improving fortunes and the broad trend in U.S. employment is still weak.

Yesterday's ADP Employment report advised that private-sector employment dropped by 10,000 last month. The consensus forecast among economists calls for a better reading tomorrow: private payrolls are expected to rise by 44,000, according to Briefing.com. Better, but still below the previous month's 71,000 net gain in private sector employment. (The headline payrolls number, which includes government jobs, is expected to show a drop of 120k for August.)

What's disturbing is that ADP's 10k dip is the first outright decline in six months. As the accompanying press release noted: "This month's decline in employment followed six monthly increases from February through July. Over those six months, the average monthly gain in employment was 37,000 with no evidence of acceleration."

But the dark news from ADP was offset yesterday with a report announced job cuts fell sharply last month.

Mixed news, in short, is circulating, which is to say that nothing much has changed. The labor market is still weak, unless tomorrow's jobs report tells us otherwise.