US: ADP Employment Report

Wed Jul 01 07:15:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
ADP employment 220,000 200,000 to 245,000 237,000 201,000 203,000

ADP estimates that private payrolls rose a larger-than-expected 237,000 in June vs Econoday expectations for 220,000 which however is inside the high-end forecast for 245,000. For comparison, the consensus for Thursday's private payroll is 225,000. ADP has missed badly the last couple of months, likely limiting its effect on expectations for tomorrow's employment report. There is early reaction to the report, though, with the dollar moving slightly higher and demand for Treasuries easing.

Market Consensus Before Announcement
The ADP employment report has been way off the past couple of months, predicting a 201,000 rise for private payrolls in May that actually came in far higher at 280,000. April was no better. Only an earth shaker, something below the Econoday low estimate of 200,000 or above the high estimate of 245,000, could make this indicator change any June forecasts for Friday.

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.