ADP Payrolls Sets Stronger Expected Gains for Friday’s BLS Employment Report

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ADP is forecasting another major gain in the payrolls for the month of January. While ADP is forecasting that the U.S. private sector companies added another 234,000 jobs in January, investors and economists need to consider that ADP has tended to be stronger than the formal Department of Labor’s Employment Situation report on no-farm private sector payrolls.

Reuters was calling for ADP to post 185,000 in January, and Dow Jones was calling for a gain of 193,000 payrolls for the month.

What also is likely at this point is that the stronger ADP payrolls report should lift expectations for Friday’s formal government payrolls report. Reuters has nonfarm payrolls expected to be 180,000 this Friday, and Dow Jones has a consensus estimate of 177,000.

It’s also important to consider what happened in December. The formal Labor Department report on nonfarm payrolls rose just 148,000 and the private sector payrolls rose by only 146,000. ADP’s national payrolls report showed a gain of 250,000 nonfarm private sector payrolls. This was a huge disconnect between the numbers, and we have seen disconnects like this in prior months.

In ADP’s payroll gains for January, the 234,000 gains were broken down as 58,000 from small businesses with under 50 employees, while medium-sized businesses with 50 to 499 employees grew by 91,000. Large businesses with over 500 employees added 85,000 jobs in January.

Another issue to consider is the mix of jobs. The goods-producing sector added only 22,000 payrolls, and 12,000 of those were in manufacturing. The services-providing sector added 212,000 in January.

It’s hard to say that either ADP is right or wrong in any given month. Their payrolls report is often used as a bias for how strong or weak a Labor Department report will be on the following Friday. The ADP National Employment Report is a collaborative report with Moody’s Analytics, and the numbers are taken directly from ADP’s payroll data and measures the actual changes they see in nonfarm private payrolls on a seasonally adjusted basis.

If a bias had to be set here, it would be that there are going to be higher payrolls revisions this Friday for December’s weak gains, or there will be a higher number of payrolls than the consensus estimates have had up to this point. That’s one theory or view to consider, and even that may not turn out to be correct.

Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, said of the January report:

We’ve kicked off the year with another month of unyielding job gains. Service providers were firing on all cylinders, posting their strongest gain in more than a year. We also saw robust hiring from midsize and large companies, while job growth in smaller firms slowed slightly.

Mark Zandi, chief economist of Moody’s Analytics, said of January’s ADP report:

The job market juggernaut marches on. Given the strong January job gain, 2018 is on track to be the eighth consecutive year in which the economy creates over 2 million jobs. If it falls short, it is likely because businesses can’t find workers to fill all the open job positions.