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As we wait for the big jobs report coming up at 8:30, here’s an interesting little nugget from BofA’s Hans Mikkelsen concerning the BLS jobs report and its relationship between the ADP private sector jobs report (which came in very weak this Wednesday).Despite its weakness, he actually sees reason to be bullish.
The big 90K decline in ADP employment change from March to +119K in April is concerning because of the negative implications for Friday’s BLS employment report. Our economists expect +155K for nonfarm payrolls, or slightly below the current Bloomberg consensus of +160K. However, the intriguing purely statistical relation between the ADP and BLS numbers presents an excuse for a credit strategist to dust off some old tools. A simple error correction model suggests that the weak ADP number for April is consistent with a relatively strong +195K type reading on Friday’s nonfarm payrolls for April. This is because the April decline in ADP is more than offset by the fact that non-farm payrolls came in significantly below ADP in March, as there is a strong tendency for discrepancies between the two measures of job creation to be corrected the following month. However, this is just statistics, and we note that the standard error of our model is 90K – thus we are making much out of little and it is possible to drive a truck through any reasonable confidence interval. However, from a statistical point of view, despite the weak ADP number the trade ahead of Friday’s employment based purely on the relationship between BLS and ADP is to sell protection.
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