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The ADP report is mildly encouraging

ADP's estimate of September private sector job gains was somewhat stronger than expected (162K vs. 140K), adding to the growing list of stronger-than-expected numbers we have seen since late last July The chart of the Citigroup Economic Surprise Index, below, documents this. In this context, it's looking like the payroll report this Friday will also beat the relatively modest consensus of 115K private sector jobs. Even if the ADP number proves accurate, however, at this rate the economy can barely keep up with population growth. Things could be worse, but at least the economy appears to be holding its own and it continues to avoid any sign of recession. In my view, economic growth is likely to be in the range of 2-3 in the current quarter, and if that relatively disappointing pace continues, the market will end up being surprised again. 1.6% 10-yr Treasury yields and -0.9% 10-yr TIPS yields continue to be priced to the expectation that growth will be zero or negative for the foreseeable future.

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