Breaking: ADP Employment Change rises 164,000 in December vs. 115,000 forecast


Private sector employment in the US rose by 164,000 in December and annual pay was up 5.4%, the data published by Automatic Data Processing (ADP) showed on Thursday. This reading followed the 101,000 (revised from 103,000) increase recorded in November and came in better than the market expectation of 115,000.

Assessing the findings of the ADP Employment Report, "we're returning to a labor market that's very much aligned with pre-pandemic hiring," said Nela Richardson, chief economist, ADP, and added:

"While wages didn't drive the recent bout of inflation, now that pay growth has retreated, any risk of a wage-price spiral has all but disappeared."

Market reaction to ADP Employment Report

The immediate market reaction to the private sector employment data was muted. The US Dollar (USD) Index was last posting small daily losses at 102.35.

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Euro.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.22% -0.13% -0.01% 0.24% 0.90% 0.13% 0.22%
EUR 0.22%   0.09% 0.21% 0.44% 1.11% 0.35% 0.43%
GBP 0.12% -0.11%   0.11% 0.35% 1.02% 0.25% 0.35%
CAD 0.02% -0.21% -0.11%   0.22% 0.92% 0.14% 0.24%
AUD -0.23% -0.46% -0.36% -0.24%   0.67% -0.10% -0.04%
JPY -0.92% -1.13% -1.03% -0.92% -0.69%   -0.77% -0.68%
NZD -0.14% -0.36% -0.27% -0.14% 0.09% 0.76%   0.08%
CHF -0.20% -0.42% -0.32% -0.20% 0.04% 0.70% -0.06%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

 

Economic Indicator

United States ADP Employment Change

The ADP Employment Change is a gauge of employment in the private sector released by the largest payroll processor in the US, Automatic Data Processing Inc. It measures the change in the number of people privately employed in the US. Generally speaking, a rise in the indicator has positive implications for consumer spending and is stimulative of economic growth. So a high reading is traditionally seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Read more.

Next release: 01/31/2024 13:15:00 GMT

Frequency: Monthly

Source: ADP Research Institute

Why it matters to traders

Traders often consider employment figures from ADP, America’s largest payrolls provider, report as the harbinger of the Bureau of Labor Statistics release on Nonfarm Payrolls (usually published two days later), because of the correlation between the two. The overlaying of both series is quite high, but on individual months, the discrepancy can be substantial. Another reason FX traders follow this report is the same as with the NFP – a persistent vigorous growth in employment figures increases inflationary pressures, and with it, the likelihood that the Fed will raise interest rates. Actual figures beating consensus tend to be USD bullish.


This section below was published as a preview of the ADP Employment Report at 08:30 GMT.

  • The ADP survey is expected to show the US private sector added 115K new positions in December. 
  • The data is relevant ahead of the Nonfarm Payrolls report to be out on Friday.
  • Recent Private Payrolls align with the Federal Reserve’s view of a moderate pace of job creation. 

The ADP Research Institute will release the December Jobs Survey on Thursday. The survey is an independent estimate of private-sector employment and pay, usually released two days ahead of the official Nonfarm Payrolls (NFP) report.

The correlation between ADP and NFP numbers is not always the most accurate and its results tend to diverge from the official job creation numbers provided by the Bureau of Labor Statistics. Still, market participants pay attention to the ADP figures as part of the multiple employment-related releases that take place in the days preceding the NFP publication.

Back in November, and according to this survey, the private sector added 103K new positions, reporting “moderate growth in hiring and another slowdown in pay gains.” 

The United States (US) Federal Reserve (Fed) has been long considering a strong labor market and wage growth as a major inflationary risk. With that in mind, the November report brought relief to policymakers who opted out of massive monetary easing. The moderated pace of job creation and salaries increases are helping the local economy grow at a modest pace, without building inflation. 

When will the ADP Jobs Survey will be released and how could it affect EUR/USD?

In such a scenario, the ADP Research Institute is expected to report on Thursday that the private sector added 115K new positions in December, slightly above the 103K added in November. Back then, ADP reported that annual pay rose 5.6%, the smallest monthly gain since September 2021, with services-related industries providing the most new positions. 

Further signs of loosening in the labor market will likely revive bets on upcoming rate cuts. The US Fed has maintained the benchmark rate unchanged for the last three meetings, in the hopes their former tightening will continue to cool price pressures. The chance of additional rate hikes is pretty much null, as the central bank will then face the risk of a steep economic setback, instead of a soft landing. 

As of lately, financial markets have been taking back bets on aggressive rate cuts throughout the first half of the year, but a softer-than-anticipated report may bring them back. Investors may welcome news that the labor sector is cooling and drop the US Dollar.

Valeria Bednarik, Chief Analyst at FXStreet, notes: “The US Dollar entered 2024 with a strong footing, partially backed by profit taking and partially due to mounting caution ahead of first-tier data releases. The EUR/USD pair currently trades near the 1.0900 threshold after peaking at 1.1139 in December and is technically poised to extend its slump. A critical support area comes at 1.0880, where the pair has a relevant intraday bottom from mid-December. If the price zone gives up, the slump could extend to the next threshold at 1.0800.” 

Bednarik adds: “However, the pair can quickly regain the 1.1000 psychological mark and its bullish tone alongside, if market participants believe the data will help the Fed anticipate a rate cut to the first quarter of the year. Once beyond the level, resistance can be found at 1.1065 and 1.1120.” 

Employment FAQs

How do employment levels affect currencies?

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

Why is wage growth important?

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

How much do central banks care about employment?

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.

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