Earlier, ADP estimated that 238,000 workers were added to private-sector payrolls in December, crushing expectations for 200,000.
ADP is often seen as the preview for the official U.S. Bureau of Labour Statistics jobs report that will be released Friday.
And while it can be flimsy, ADP has tracked the BLS fairly well recently. From ADP:
Deutsche Bank’s Joe LaVorgna has already raised his forecast for Friday’s report to +250,000 from +200,000.
“[T]his report does suggest some modest upside risk to our forecast of a 175k increase in headline payrolls and a 175k increase in private payrolls,” said Barclays’ Cooper Howes.
But many economists are also cautioning against getting too too excited.
“We’re not entirely convinced by the ADP’s usefulness as a leading indicator of non-farm payrolls but, to the extent it can be trusted, it supports our existing forecast that the official figures will show a 200,000 gain when they are released this Friday,” wrote Capital Economics’ Paul Ashworth.
High Frequency Economics’ Jim Sullivan throws a bucket of cold water on ADP. He wrote clients ahead of the report:
The report’s accuracy appears to have improved since Moody’s became the compiler of the data, although it is still quite fallible, and a couple of factors could make this month’s report less reliable than usual for forecasting payrolls.
First, weather fluctuations tend to affect payrolls more than the ADP series, since a person temporarily not working but still on a company’s books is counted as employed in the ADP survey. Second, December is typically when employers “purge” their employee lists, dropping individuals who have left the firm permanently. Adjusting for that purging has always been an extra source of volatility in the ADP data. At 46K, ADP’s error last December, just after Moody’s took over, was not especially large.
Sullivan says that some of ADP’s biggest misses have historically been in December.
Regardless, the ADP report can either be ignored or it can be seen as a good sign.
“In one line: No guarantees, but the odds now favour a consensus-beating report on Friday,” said Pantheon Macroeconomics’ Ian Shepherdson.
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