US: ADP Employment Report

Wed Aug 05 07:15:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
ADP employment 210,000 190,000 to 260,000 185,000 237,000 229,000

Friday's employment report will be a flop, based on ADP's estimate for private payrolls which it sees rising only 185,000. This compares with Econoday expectations for 210,000 and is below the low estimate for 190,000. For comparison, the consensus for Friday's private payrolls is also 210,000. ADP has a spotty record but these results may be weak enough to lower expectations for Friday's report.

Market Consensus Before Announcement
The ADP employment report is expected to show a 210,000 gain for private payrolls in July vs ADP's 237,000 estimate for June which proved to be on the high side. This report, though ambitious in scope, has had a checkered track record and, unless wildly outside expectations, isn't likely to move the markets.

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.