US: ADP Employment Report

Wed Mar 30 07:15:00 CDT 2016

Consensus Consensus Range Actual Previous Revised
ADP employment 203,000 165,000 to 225,000 200,000 214,000 205,000

Little else may be falling into place but the U.S. labor market is likely to show its strength once again in Friday's March employment report, based at least on ADP's private payroll count which came in very near expectations at 200,000 on the nose. There's little change from February when ADP's sample posted revised growth of 205,000. Expectations for Friday's private payrolls are also at 200,000 which would prove a very healthy level though down from February's even stronger 230,000. ADP isn't always an accurate barometer of the government's data but it has definitely been useful the last several reports, signaling convincing acceleration in December, slowing in January, then strength again in February.

Market Consensus Before Announcement
The ADP employment report doesn't always match the government's employment report but it has been accurate the last several reports, signaling convincing acceleration in December, slowing in January, then strength again in February. Forecasters see Friday's employment report for February showing strength and likewise see ADP showing strength as well, at a consensus 203,000 vs ADP's private payroll count of 214,000 in February.

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.