ADP jobs report no closer to helping determine official US payrolls

(Alliance News) - ADP unveiled its new US jobs report on Wednesday, with analysts unsure how valuable it really is, with focus now shifting to the nonfarm payrolls data coming on Friday.

ADP in June said it was retooling the methodology of its national employment report to create "a more robust, high-frequency view of the labor market". The print typically serves as a precursor to Friday's nonfarm payrolls.

The private sector added 132,000 jobs in August, down from 270,000 in July.

"With only limited details as to how they arrived at that number, we have little confidence that this new survey will prove to be any more accurate a guide to the official payrolls tally than the previous incarnation. We expect the official measure, due out on Friday, will show non-farm payrolls rose by 350,000 in August," Capital Economics Senior US Economist Michael Pearce said.

Pantheon Macroeconomics said the new figures are "probably" better than last month's.

"We can't say for sure because it's not clear if the historical data using the new method are the initial estimates which would have been released at the time, or if they have been revised for late returns or updated seasonal factors," Pantheon Chief Economist Ian Shepherdson said.

"If they are the initial estimates, then the mean absolute error over the past year, against the initial official estimate for private payrolls, is 147,000, with a range from negative 275,000 in February to positive 298,000 last October. For the year to May, when ADP stopped publishing the old data, the mean absolute error for the new method is 156,000, rather better than the 263,000 for the old method."

ADP said its data showed a "shift toward a more conservative pace of hiring".

Nela Richardson, chief economist at ADP, added: "We could be at an inflection point, from super-charged job gains to something more normal."

Meanwhile, pay rose 7.6% on an annual basis in August. In early 2021, annual pay increases were running around 2%, ADP said. US consumer price inflation currently is running at 8.5%.

Shepherdson continued: "ADP's new method undershot the official number by a hefty 203K, following a mere 1,000 undershoot in June. In short, the errors appear to be uncorrelated, signalling a lack of bias - a good thing - but quite large and unpredictable, which is a bad thing.

"The July undershoot therefore tells us nothing about the likely direction or size of the error in August. We're sticking to our forecast that private payrolls rose by 350,000, based on the strong Homebase data for the official survey week."

The US economy is expected to have added 300,000 jobs in August, down from 528,000 in July, according to FXStreet.

Capital Economics noted the new measure is not designed to forecast the official non-farm payroll series, but is intended to be complementary to the government data.

"With so few details as to the construction of this new measure and only a limited track record which differs markedly from the other series, it appears this new ADP measure will be of no more use at providing an early steer to labour market conditions than the previous version was," Pearce added.

By Paul McGowan; [email protected]

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