The ADP survey suggests that US private sector employment increased by 187,000 in January, another strong showing, although it is below the reported 247,000 increase in December. The question, however, is can this survey be trusted to give us an accurate steer on the official non-farm payrolls, data released this Friday, or is it ‘crying wolf’ once again? The ADP survey originally suggested a 297,000 gain in December (it's since been revised lower), but non-farm payrolls increased by ‘only’ 103,000. That makes me VERY cautious enough that I won't be changing my existing estimate that non-farm payrolls increased by 125,000 last month.
The breakdown of the ADP survey is interesting, however, because it shows that over the past few months it is smaller firms with fewer than 50 employees who have been responsible for a lot of the net job creation. This is the same message that comes out of the latest business employment and dynamics (BED) survey. Although the BED survey is released with a considerable lag, we only just have Q2 data, it also shows net job creation concentrated within smaller firms. Early in this recovery, small firms appeared to be lagging, held back by credit constraints. Apparently, not any more.
The least worst of the monthly payrolls indicators, the ADP survey, printed a 187,000 increase for January, in excess of the 140,000 expectation, but lower than the 297,000 figure for December. The December figure was arguably distorted by end of year payrolls conventions, and today’s figure is probably a closer parallel for the payrolls number. But ADP has not been a particularly good payrolls predictor recently. And the stronger data today has given ‘hope’ to a number of analysts who have raised their Friday’s expectation to ‘around’ 165-180,000 forecast.
This data sheds absolutely no light at all onto the direction of the US unemployment rate. As a the product of the choppy and often uncorrelated (with payrolls) household employment survey, plus the erratic labour force data, even the direction of the unemployment rate is unfathomable at this stage.