US: ADP Employment Report

Wed Oct 04 07:15:00 CDT 2017

Consensus Consensus Range Actual Previous Revised
ADP employment 140,000 -25,000 to 175,000 135,000 237,000 228,000

Hurricanes didn't scramble ADP's sample too much in September with their private payroll estimate at 135,000 which is very close to Econoday's consensus for 140,000. The result is down sharply from August but is still constructive and consistent with a strong labor market, especially given the disruptions in Texas from Hurricane Harvey and in Florida from Hurricane Irma.

ADP's estimate for August is revised only modestly lower, down 9,000 to 228,000 which is still far above the government's initial total of 165,000. The spread between these readings hint, however uncertainly, at an upward revision to August data in Friday's employment report.

Econoday's consensus for private payroll growth in Friday's report is 117,000 though the range of estimates is very wide, between 20,000 and 150,000. Watch later this morning for the non-manufacturing report from the Institute For Supply Management whose employment index will offer another indication on what to expect for Friday.

Market Consensus Before Announcement
ADP has been very wild in recent months, calling for exceptional acceleration in September private payrolls which actually slowed sharply. In July and June, ADP fell well short of actual growth. The ADP consensus for September is 140,000 vs ADP's 237,000 August call when actual private payrolls rose only 165,000.

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.