ADP’s stronger-than-expected gain in US private employment for August hints at the possibility that the downshift in the labor market’s annual growth rate over the past two years is steadying. If so, we may see some corroboration in tomorrow’s update on payrolls from the Labor Dept.
Meantime, the ADP Employment Report for this month is certainly encouraging. US companies added 237,000 workers in August, beating Econoday.com’s consensus forecast for a 185,000 advance by a wide margin. More importantly, the year-over-year change in ADP’s estimate perked up to 2.0% for a second time this year.
“The job market continues to power forward,” said Mark Zandi, chief economist of Moody’s Analytics, which co-produces the data with ADP. “Job creation is strong across nearly all industries, company sizes.”
The implied forecast for tomorrow’s government report points to a strong gain of 232,000 in private payrolls, based on a simple regression model that uses the ADP numbers to back out a prediction for the Labor Dept.’s estimate.
But as Zandi notes, the relationship between the two data sets isn’t perfect, and the record for this month is especially shaky between the pair. “The initial [Bureau of Labor Statistics] employment estimate is often very weak in August due to measurement problems, and is subsequently revised higher. The ADP number is not impacted by those problems.”
In other words, there’s a risk that tomorrow’s update could fall well short of ADP’s upbeat print. Economists are certainly cautious. Econoday.com’s consensus forecast for the government’s August estimate of private payrolls calls for a moderate rise of 179,000, sharply below the 232,000 jump via ADP’s number crunching.
Keep in mind, too, that recent history shows that the ADP data has been running much hotter than the Labor Department’s figures. In each of the five months through July, ADP’s estimate of monthly growth in private payrolls has exceeded the government’s estimate by a hefty 200,000 to 300,000.
The optimistic interpretation of the surge in the monthly difference is that the Labor Dept.’s numbers are overdue for a sharp rise. The alternative view: ADP’s profiling efforts have dramatically overstated the true pace of employment gains in recent history.
But let’s think positively for a minute and use the implied forecast for tomorrow’s release to calculate the year-over-year change in private payrolls through August. By that yardstick, the annual pace of growth will tick up slightly for this month after edging below the 1.7% mark in July, which was close to the softest year-over-year advance in six years.
The best-case scenario, in other words, offers mild support for thinking that the government’s data on private payrolls will show new evidence of stabilizing, albeit at a modest rate vs. the trend in past years. Good news, if it holds up. But as Zandi reminds, August can be tricky for the government’s bean counters and so there’s more than a trivial possibility that tomorrow’s data will fall well short of ADP’s robust estimate.