There have been two indicators of the US labor market today. The ADP estimate was disappointing coming in at 185k. The consensus was for 215k. It was the smallest increase since April and is the fourth reading below 200k this year. It was below 200k only once in 2014.

The private sector nonfarm payrolls has been below 200k twice in the first six months. The ADP average estimate this year is 198k, while the private sector nonfarm payrolls has grown by an average of 207k this year.

The employment component of the non-manufacturing ISM rose to 59.6 from 52.7. This is the strongest on record. Moreover, the rate of change (economic momentum) is the largest since the economic recovery began in 2009.

This Great Graphic, composed on Bloomberg shows the this index over the past five years.

Click on picture to enlarge

The ADP methodology gets tweaked on occasion. This ensures that it tracks the monthly government data. The employment gauge of the services ISM is not “curve fitted”. However, the market has responded just as dramatically to the ISM report as the ADP. In fact, 2- and 10-year Treasury yields recorded new session highs after the ISM report.

The euro gave up all of its post-ADP gains. The dollar rose to new session highs against the yen, reaching the JPY125 level for the first time in nearly two months.

The market reaction is understandable, if one assumes that the bar to a Fed hike next month is low, as the FOMC statement and Lockhart suggested, and if one accepts that the market, unlike surveys, does not have that hike fully discounted.