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.
CME Group is the world's leading and most diverse derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX.