Photo: AP / Damian Dovarganes
The ADP report released earlier today said that the U.S. economy added 215,000 private sector jobs in December and beat analyst expectations by 140,000 jobs.Shortly after this report came out, economists revised their estimates for the jobs number that will be released tomorrow.
For example, TD Securites, which is on the bearish end of the spectrum, raised their forecast from 82K to 107K.
Deutsche bank, which is on the bullish end, raised their forecast from 150K to 190K.
While the ADP report might have been part of the reason for this sudden optimism, reports from both economists had their doubts about the reliability of ADP’s predictive power.
According to TD Securities’ Millan Mulraine,
“We are inclined to fade ADP, especially in December. ADP reconciles its payrolls with the BLS and since ADP generally undercounts jobs in a rising market (the opposite in a falling market) this now tends to make the adjustment at year end a large overestimation of December BLS payrolls.
Over the past two years, ADP undercounted jobs by an average of 115k relative to the BLS over the Jan-Nov period. This fuelled an overestimation of payrolls by an average 144k in the past two Decembers. In 2012 ADP is missing even more jobs, undercounting 177k jobs relative to the BLS. If anything, the ADP number is thematically consistent with our weak payroll expectation.”
According to Deutsche’s Joseph LaVorgna,
“ADP has had a mixed track record predicting changes in employment, and the survey compilation has changed producers; Moody’s Analytics now produces the data instead of Macroeconomic Advisors. Conceivably, the seasonal and bias adjustment factors are different, which means that we no longer have a consistent time series. Therefore, we are hesitant to fully adopt the information that ADP implies.”
So why did the two economists revise their jobs number estimates upwards?
Both economists attributed their upward adjustments to the surprisingly strong Philly Fed index, the rebounding ISM manufacturing survey, which jumped the highest it’s been since April 2012, and the downward trend in jobless claims.