Mario Blascak, PhD
Independent Analyst
- The ADP employment report saw 271K new jobs added in the US economy in December, well above 179K expected by the market.
- December 2018 ADP employment report saw the best job creation since February 2017 and the fourth largest monthly job creation since the 2009 recession.
- Given the historical correlation, a strong reading in private ADP employment report indicates upside surprise in the government’s report on Friday, January 5.
The US private jobs rose way above market expectations in December with 271K new jobs added on payroll compared with 179K expected by the market. November reading in ADP employment was revised down to 157K from originally reported 178K. The December ADP employment was the fourth largest monthly jobs creation since the economic recession of 2009 and the best December since 2012 when 325K jobs were added in the US economy.
The long-term simple correlation of the ADP employment report with the non-far payroll total number reported by the Bureau of Labor is 93.1% based on a monthly change in total nonfarm private employment since January 2008. The average forecast error is 10.3K while the mean absolute error is 31.45K.
Given the market forecast for Friday’s non-farm payroll of 177K and the current ADP employment figure of 271K, even if the deviation of the ADP from the government’s non-farm payroll hits the absolute error of 31.45K on the downside, the actual number will be 239.6K, so exceeding the current market estimates.
On the other hand, if the deviation of the ADP from the government’s non-farm payroll hits the absolute error of 31.45K on the upside, the actual number will be 302.5K, exceeding the current market estimates and marking the highest job creation since February 2018 of 324K.
The expectations of the upside surprise in Friday’s non-farm payroll report from the US Bureau of Labor are emphasized by the fact, that in September 2018 the ADP employment report surprised on the upside rising to 230K originally reported, while government’s non-farm payroll reached only 119K, completely diverging from ADP report. Given the historical correlation, such divergence is left for 7% of times in a year a that is less than once in a year.
Correlation of ADP and NFP monthly employment change
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