Private payrolls in the US increased by 241,000 in December, according to this morning’s ADP Employment Report. The gain, which beat expectations by a sizable margin, marks a moderate improvement over November’s revised 227,000 advance. More importantly, the year-over-year pace of growth accelerated to roughly 2.2% through last month—the fastest annual growth rate since August 2012. Today’s data comes at a critical time, when concerns that Europe’s economic trend is stagnating or worse. Granted, the offshore risks for the US remain substantial, but ADP’s latest release suggests that the recent improvement in job growth was intact at last year’s close.
“The job market continues to power forward,” Mark Zandi, chief economist at Moody’s Analytics, said in a press release that accompanied today’s release. Moody’s, in connection with ADP, calculates the employment figures. “Businesses across all industries and sizes are adding to payrolls.”
Even so, global risks aren’t so easily dismissed at the moment. A bigger test of America’s macro resiliency will arrive in the January economic profile, but those numbers won’t begin trickling in for another month at the earliest. If the months ahead will witness increased turbulence, the US is at least heading into a storm in the new year with a healthy dose of forward momentum as of 2014’s close.
On that note, the latest ADP release bodes well for expecting another solid gain in Friday’s jobs report for December from the US Labor Department. The historical correlation between the monthly changes in the two data series is quite high, roughly 0.96 for the past 12 years. Running the numbers through a simple linear regression model implies that Friday’s official jobs report from Washington will show a 238,000 gain in private-sector employment. That’s down from the stellar 314,000 increase that the Labor Department reported for November for the private sector. Nonetheless, another 200,000-plus rise still looks good (assuming that’s what we’ll see) given the recent improvement generally in the pace of employment gains in last year’s second half.
The bottom line: there’s no sign that the US economy is decelerating via ADP’s latest estimate for private payrolls. That doesn’t mean that the near-term outlook is somewhat more precarious than, say, a month ago. But expecting the worse remains an act of speculation at the moment with minimal support from the data.