US companies added 208,000 workers in November, according to this morning’s ADP Employment Report. The gain was a bit softer than the consensus forecast, but overall the labor market continues to show a solid rate of growth. “At this pace the unemployment rate will drop by half a percentage point per annum,” Mark Zandi, chief economist of Moody’s Analytics, said in the accompanying press release. “The tightening in the job market will soon prompt acceleration in wage growth.”
Nonetheless, last month’s increase represents a slight deceleration vs. October’s gain. The one-year change in ADP’s estimate of payrolls dipped incrementally to 2.12% vs. 2.16% in the previous month. But that looks like noise at this point and so it’s fair to say that the stronger run of growth in recent months is still alive and kicking. Indeed, by ADP’s estimate, private payrolls grew above the 2% mark on an annual basis for the eighth straight month—the longest run of 2%-plus annual growth since the 16-month run that ended in January 2013.
Today’s ADP data implies that Friday’s official jobs report from the Labor Department will deliver a similarly upbeat profile for November. There’s a close relationship between the ADP dataset and the government’s estimate of private payrolls. Comparing the monthly changes in the two series suggests as much. Although the connection isn’t perfect, the historical relationship is strong enough to inspire moderate optimism that Friday’s update will confirm the basic narrative in today’s ADP figures.
Running the two series through a simple linear regression model implies that the Labor Department will report a gain of roughly 205,000 for November’s private payrolls, based on the point forecast via ADP’s November estimate. As usual, there’s a relatively wide spectrum of expected outcomes via the prediction intervals and so all the standard caveats apply. That said, today’s numbers provide support for anticipating that Fridays’ employment report will confirm that the US labor continues to enjoy a healthy if unspectacular run of positive momentum.