Strong ADP Payrolls on Wednesday Set Stage for Strong Labor Department Report on Friday

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While comparing private sector reports to government reports is not always an apples-to-apples comparison, the markets still look closely at the ADP National Employment Report as a barometer for how strong each monthly private sector payrolls report will look. ADP reported that some 235,000 private sector payrolls were added in the month of February.

Dow Jones (WSJ) had only predicted that 200,000 payrolls would be added in the month. Bloomberg’s consensus estimate was 205,000, and that came from an Econoday range of 172,000 to 223,000.

ADP showed that small businesses (one to 49 employees) added 68,000 jobs in February. Mid-sized businesses (50 to 499 employees) added 97,000 jobs in February and large businesses added 70,000 jobs.

And to show even more strength in the monthly ADP data, the total number of payrolls added in January was revised up to 244,000. The prior report had shown a gain of 234,000.

One key takeaway here in the ADP report is that the jobs market may be close to overheating to the point that finding qualified employees for a job is going to be difficult.

While the ADP payrolls data is derived from the company’s own 411,000 U.S. client payroll reports rather than a sampling of households used by the government, the markets are likely to use this strong ADP report as a yardstick for a strong private sector payrolls gain in this Friday’s unemployment and payrolls report from the Labor Department.

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

The labor market continues to experience uninterrupted growth. We see persistent gains across most industries with leisure and hospitality and retail leading the way as consumer spending kicked up.  At this pace of job growth employers will soon become hard-pressed to find qualified workers.

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

The job market is red hot and threatens to overheat. With government spending increases and tax cuts, growth is set to accelerate.

Bloomberg has this Friday’s unemployment report estimates as follows:

  • Nonfarm payrolls: 205,000
  • Private sector payrolls: 195,000
  • Unemployment rate: 4.0%
  • Average hourly earnings: up 0.2% from the prior month and up 2.9% from a year ago
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