US: ADP Employment Report

January 5, 2017 07:15 CST

Consensus Consensus Range Actual Previous Revised
ADP employment 172,000 160,000 to 185,000 153,000 216,000 215,000

ADP is pointing to a softer-than-expected employment report on Friday. ADP's estimate for private payrolls is 153,000, a still respectable level of growth but noticeably below the Econoday consensus for 172,000. Private payroll growth in Friday's December employment report from the government is expected to come in at 165,000 with total nonfarm payroll growth at 175,000.

Market Consensus Before Announcement
ADP's employment estimate had a good year, accurately forecasting directional shifts in private payrolls more times than not. But ADP called for unusual strength in November which, at 156,000 in the government's data, proved solid but not spectacular. Forecasters see ADP's call for December coming in at 172,000 in a result that would provide a solid base for the government's report.

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.