Zacks Analyst Blog Highlights: Automatic Data Processing, D.R. Horton, Ford, Caterpillar and Jones Lang LaSalle Incorporated

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Jan 06, 2011, 09:30 ET

CHICAGO, Jan. 6, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Automatic Data Processing (NYSE: ADP), D.R. Horton (NYSE: DHI), Ford (NYSE: F), Caterpillar (NYSE: CAT) and Jones Lang LaSalle Incorporated (NYSE: JLL).

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Here are highlights from Wednesday's Analyst Blog:

ADP Sees Great Job Growth!

The Automatic Data Processing (NYSE: ADP) employment survey was FAR better than expected in December. It shows that private sector employment rose by 297,000 in October, almost triple consensus expectations for a 100,000 increase. The November numbers were revised slightly lower to a gain of 92,000 jobs rather than the original estimate of a gain of 93,000 jobs.

ADP, as the largest payroll processing firm in the country, is in a very good position to look at the state of the job market. This is evidence of an economy that is not only growing, but is accelerating very nicely.

For most of 2010, the ADP report has consistently been more pessimistic than the Bureau of Labor Statistics (BLS) report -- due out Friday morning -- although that was not the case in November. Some of this huge pop could be a statistical catch-up to the BLS numbers, but certainly not all of it. This is the sort of the level we need to make a serious dent in the vast army of the unemployed.

Small businesses, defined as those with fewer than 50 employees rose a total of 117,000 jobs in the month. Medium-sized firms, those with between 50 and 499 employees, gained 114,000 jobs while large firms with 500 or more employees added 36,000 jobs. Large businesses are a relatively small share of total employment in the country, accounting for just 17.544 million out of a total of 107.512 million private sector jobs in the country. Small business is the largest source of employment at 48.499 million, followed by medium businesses at 41.469 million.

Goods Producing

The goods producing sector added a total of 27,000 jobs. Overall, goods producing industries are not that big a source of jobs in this country, just 17.489 million (16.3%) in total. Employment in goods producing industries tends to be more volatile than in the service sector, and thus the goods producing industries have an outsized influence on the overall strength of the job market.

Goods producing jobs, particularly manufacturing jobs, have been in a secular decline, particularly as a share of total employment, for more than 30 years now. Relative to the overall increase, it looks like that trend is continuing. The goods producing sector is made up of Manufacturing, Construction and Mining. While construction jobs did increase during the housing bubble, those jobs were particularly hard hit in the Great Recession.

Construction Industry

Construction industry employment was unchanged in December. That is actually good news as it is the first time since June of 2007 that the industry has not shed employees. Over that period has shrunk employment by a total of 2.306 million. That is more than one fourth of the total jobs lost in the entire economy since the recession started.

Historically, construction employment (especially residential construction) is one of the first areas to recover when the economy starts to rebound, but that is not happening this time around. With the extraordinary weakness in new home sales in recent months, there is very little reason to believe that construction employment is going to pick up anytime soon.

High vacancy rates in most forms of commercial real estate also means that there is not going to be much of a pick-up in commercial construction anytime soon. Still, just by not being a drag on the rest of the economy, things will start to look better overall.

Eventually higher employment is going to lead to higher rates of household formation. That, combined with population growth, will increase the demand for housing and the massive inventory overhang we have now will be absorbed. That, however, is not a first half of 2011 story, but it could well start to occur late in 2011 or in 2012.

Manufacturing and Homebuilding

Manufacturing had been a bright spot in this recovery, but it faltered in the fall. It looks like it is getting back on track with a gain of 23,000 jobs in December. There were 11.525 million manufacturing jobs in December, or just 10.7% of the overall private sector workforce.

ADP does not break out mining jobs separately, but given the overall rise in goods-producing jobs, we can surmise that the number of mining jobs was up 4,000 on the month. Within the goods-producing sector, most of the gains came from the medium-sized firms, which added 21,000 jobs. Large firms added 9,000, while things were still tough among the small goods-producing firms, which lost a net of 3,000 jobs for the month.

The disparity in the goods-producing sector between small and large-sized firms is probably related to the differences between construction and manufacturing. There are lots and lots of small construction firms.

Most of the major homebuilders like D.R. Horton (NYSE: DHI) outsource most of their work to smaller subcontractors, and do not directly hire or fire lots of framers and roofers. Manufacturing, on the other hand, tends to be more dominated by the big household names like Ford (NYSE: F) and Caterpillar (NYSE: CAT). The parts they use tend to be mostly made by medium-sized firms.

Jones Lang Upbeat on U.S. Hotel Market

According to a report published by Jones Lang LaSalle Incorporated (NYSE: JLL), a leading real estate investment trust (REIT), hotel sales and acquisitions would increase to the tune of 25% in 2011 in the Americas with investors vying for premium assets. Jones Lang further anticipates that transaction volume would total approximately $13.0 billion in 2011, significantly up from about $10.5 billion in the previous year.

The report cites that a healthy rebound in the U.S. business and leisure travel has attracted a wide array of investors in the hotel industry, including investors from the Middle East. According to Smith Travel Research Inc., an independent research company in the lodging industry, hotel revenue per available room (RevPAR) in the top 25 U.S. markets rose to $76.61 during the first 11 months of 2010 from $71.55 in the year-ago period.

Jones Lang expects REITs to be the dominant buyers in 2011, with private equity groups and institutional investors increasingly joining the party as leverage levels and terms pick up with improving market fundamentals.

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