GOCMEN
By Lindsey Cwik
After a three-month suspension to update methodology, ADP’s new data looks promising.
Automatic Data Processing, Inc. (ADP), the largest payroll processor in the U.S., has just released its new National Employment Report (NEP) and Pay Insights Report in conjunction with the Stanford and Digital Economy Lab. The new publications will replace ADP’s previous labor reports, which sought to forecast the Bureau of Labor Statistics (BLS) nonfarm payroll report. Following a three-month data release hiatus to reassess methodologies, ADP has resumed data reporting, including historical revisions that date back to 2010. We are encouraged by the statistical significance of the new data series and believe they will become important tools in assessing the health of the U.S. labor market.
ADP’s previous report, which used a model-based methodology to “match” the nonfarm payroll report, often included large discrepancies relative to BLS results. Significant revisions every month reduced the report’s credibility among market participants and reinforced the need for more accurate and reliable data.
Rather than manipulating the data to predict BLS numbers, the new report leverages “raw” ADP payroll transactions. Granularity is provided through a breakdown of job and pay results by sector, region, and firm size. Another advantage is the frequency with which the data is reported. For example, ADP reports on employment by establishment size on a monthly basis rather than quarterly. In addition, the monthly jobs release not only indicates the change in private employment over the current month, but also the weekly changes for the preceding month.
In October, the economy added 239,000 private jobs, according to ADP, which was not far off the BLS private payroll change of 233,000. Although the headline numbers were closely matched, there were large discrepancies within sectors. For example, BLS recorded a 32,000 increase in manufacturing, while ADP reported a decline of 20,000, for an 8.6% percentage difference in the totals.
We are beginning to re-incorporate this data into our analysis of the U.S. economy. As the Federal Reserve looks to temper rate hikes, it may turn to additional measures to assess the strength of the labor market. We believe that with the revised methodology, the ADP labor report represents a better leading indicator than the previous version and will add more depth to the analysis of the BLS Establishment Survey. As we look for more data within the labor market as it pertains to Fed policy, we believe this new ADP report will be a valuable source of that information.
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