ADP employment preview: job creation expected to remain healthy
- Private payrolls reported by Automatic Data Processing (ADP) are forecast to show 195,000 new employees in November
- The ADP report is the lead into the Employment Situation Report from the US Department of Labor this Friday at 8:30 am EST, 13:30 GMT
- Labor markets have been a key support factor in the Federal Reserve’s rate increases over the past three years
ADP – strong forecast, NFP relationship
American employers are thought to have maintained their strong recruitment in November with 195,000 new positions on the books at the payroll processing giant ADP. The September and October ADP numbers, 227,000 and 218,000 were the first back to back months over 200,000 since January and February and averaged 19% over their consensus estimates.
ADP payrolls are the precursor to the non-farm and private payrolls statistics of the closely followed employment report of the US government, colloquially known as non-farm payrolls.
The relationship between the two set of statistics tends to be directional not numerical. Last month both the ADP and NFP numbers were considerably stronger than expected, ADP 227,000 vs 189,000, and NFP 250,000 vs 190,000. In September ADP came in at 218,000 vs its 185,000 forecast but NFP was only 118,000, substantially worse than its 185,000 estimate. In August it was the reverse ADP underperformed its 190,000 forecast at 162,000 while NFP was much stronger than its 191,000 forecast at 286,000.
Job creation in the US has averaged 212,500 monthly through October, its best year since 226,000 in 2015.
Fed policy and the dollar – falling expectations
The robust labor market has provided the Federal Reserve with support for its three year old policy of returning rates to a more normal range. Teh central bank begantightening in late 2015 after almost seven years of effective zero rates.
Recent comments from Federal Reserve Chairman Jerome Powell that the Fed Funds may be nearing their neutral level has prompted considerable speculation that the central bank will reduce its projected there increases in 2019. A 25 basis point hike at the December 18-19 meeting remains almost universally expected.
Weaker than expected ADP and NFP numbers would add to that anticipation. The dollar would likely follow them down.
The Fed will release new Projection Materials after the December FOMC, including the governors’ estimates for the Fed Funds rate out three years.
The ADP numbers are normally released on the Wednesday before the NFP report. This month they have been postponed to Thursday November 6th, due to the closure of US markets in honor of late President George H.W. Bush
Author
Joseph Trevisani
FXStreet
Joseph Trevisani began his thirty-year career in the financial markets at Credit Suisse in New York and Singapore where he worked for 12 years as an interbank currency trader and trading desk manager.
