NFP Preview: What to expect of NFP after ADP

Private sector employment increased by 190,000 jobs from October to November a report from ADP showed on Wednesday, December 6th. The US labor market continues to grow at a solid pace, especially in manufacturing that has added the most jobs the industry has seen in a year. 

Although surprises and directionally different readings between the private ADP employment report and the government labor market report happen from time to time, statistically they differ in less than 20% of times indicating that the BLS’s report will see a reading of around 200K this Friday. The unemployment rate is set to remain steady at 4.1% in November, the Bureau of Labor Statistics data are expected to show on Friday, December 8th.

Apart from the unemployment rate and the headline number of new non-farm jobs created in November, the market is likely to see the average wage growth as a key indicator of purchasing power indirectly also linked to future inflation development. 

With the labor market continuously strengthening and wages increasing, it is a sure shot for Fed to raise the interest rates as early as next week.  On a currency front, mere rate hike from Fed is unlikely to move the currency markets as the December rate hike has already been priced-in and from FX market perspective it won't do anything to support the US Dollar.

ADP private labor market survey 

Methodology of NFP and ADP

The US Labor Department survey is conducted on a sample of about 147K businesses and government agencies that both represent about 634K individual worksites. The data collected by the US Labor Department include employment, hours worked and weekly earnings.

On the other hand, ADP private employment report is done in cooperation with Moody's Analytics, which partners with ADP. The ADP report is compiled from client payroll database of ADP that covers roughly 20% of the US private payroll employment. The time series begins in 2001 while the data are seasonally adjusted and processed the way that excludes extreme values. ADP is also identifying clients by industry and company size in order to aggregate the individual client data into industries and company size in other to match it with Bureau of Labor Statistics data. 

Historical correlation of total private non-farm employment