US: ADP Employment Report

Wed May 06 07:15:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
ADP employment 205,000 170,000 to 295,000 169,000 189,000 175,000

ADP correctly signaled a weak employment report for March and it's signaling another weak report for April, at only 169,000 for its private payroll gauge which is far under the Econoday concensus for 205,000 and just under the low estimate for 170,000. ADP's estimate for March is now revised 14,000 lower to 175,000. For comparison, the Econoday consensus for private payroll growth in Friday's employment report is 223,000 with the low estimate at 170,000. ADP doesn't always move the markets but it may today, raising talk of another soft employment report on Friday.

Market Consensus Before Announcement
The ADP employment report doesn't always offer the right signals for the government's data but it did in March, foretelling what was that's month very disappointing employment report. ADP's count for government payroll growth is expected to bounce back in April, to 205,000 vs 189,000 in March, but the consensus range is very wide at 170,000 to 295,000 which points to uncertainty.

The ADP national employment report is computed from a subset of ADP records that represent approximately 400,000 U.S. business clients and approximately 23 million U.S. employees working in all private industrial sectors. ADP contracted with Moody's Analytics to compute a monthly report that would ultimately help to predict monthly nonfarm payrolls from the Bureau of Labor Statistic's employment situation. The ADP report only covers private (excluding government) payrolls.

Market players have become accustomed to the excitement on employment Friday and realize the rich detail of the monthly employment situation can help set the tone for the entire month. While economists have certainly improved their nonfarm payroll forecasts over the years, it is not unusual to see surprises on employment Friday. To that end, the new ADP national employment report can help improve the payroll forecast by providing information in advance of the employment report.

The employment statistics also provide insight on wage trends, and wage inflation is high on the list of enemies for the Federal Reserve. Fed officials constantly monitor this data watching for even the smallest signs of potential inflationary pressures, even when economic conditions are soggy. If inflation is under control, it is easier for the Fed to maintain a more accommodative monetary policy. If inflation is a problem, the Fed is limited in providing economic stimulus. The ADP national employment report does not yet have wage information, but their goal is to provide wage information, along with industry and regional information as well.

By tracking jobs, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline - boosting up bond and stock prices in the process.