US: ADP Employment Report

Wed May 30 07:15:00 CDT 2018

Consensus Consensus Range Actual Previous Revised
ADP employment 187,000 180,000 to 225,000 178,000 204,000 163,000

Moderate strength is ADP's call for Friday's employment report, at 178,000 growth in private payrolls for May which is slightly below the Econoday consensus for 187,000 and also slightly below the 185,000 consensus for actual private payrolls. ADP has been running hotter than actual data making today's result feel a bit soft. The outsized strength in prior readings is evident in ADP's revision to April which is unusually severe, from an initial 204,000 to 163,000 which brings it in line with the actual 168,000 from the government.

Market Consensus Before Announcement
Econoday's consensus for ADP's private payroll estimate in May is 187,000 which would compare with 204,000 in ADP's April estimate and against 168,000 in the government's data for April. ADP has been running far stronger than actual payrolls.

The national employment report from Automated Data Processing Inc. is computed from 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.