Reclaiming Common Sense

The Monthly ADP Payroll report is released the Wednesday before the Friday release of the government's monthly Employment Situation Report, or Jobs report. The ADP report is entirely based upon seasonally adjusted data with no non-seasonally adjusted data released at the same time. The Jobs report has two data sets, the Current population Survey (CPS) data and the Current Employment Situation (CES) data. The CPS data measures the number of full-time jobs, part-time jobs, and unemployed workers, as well as the workforce population estimate. The CES data is the headline data and measures the number of workers. The ADP data measures private sector jobs. The media often reports the Seasonally Adjusted (SA) Non-farm payroll (NFP) as the headline value. The value that was reported for President Obama's "Job Streak" was the SA Private Sector worker value. The Obama "Jobs Streak" is an economic urban legend.

The January data for the CES headline numbers were revised lower for 2015 and higher for both 2016 and 2017. These revisions meant that the growth from December to January was skewed low. Instead of reporting that 452,000 SA Private sector workers joined the workforce, based on the advance December SA CES data, the private sector increased was only 196,000 workers.  The only number that was "out of the ordinary" for the CPS data was the workforce population. Whereas the January 2017 CPS data reflected a decrease in the workforce population, effectively boosting the workforce participation rate, the January 2018 population growth spikedby the same amount, effectively reducing the workforce participation rate. Last month the January ADP report reported  234,000 (SA) private sector  jobs added to the economy after increases of 238,000 during October, 206,000 during November,  and 242,000 during December.  The December ADP report reported the October growth as 238,000and the November rate at just 185,000 and the December rate at 250,000. It comes down to growth rate and revisions. Prior to the January CES revisions 2017 was reported as growing at a faster rate than 2016. This was not the case after the revisions, even though 2017 saw the addition of more private sector workers than 2016. What can we expect from the ADP report this Wednesday?

We are growing faster than 2013 and 2017.  Last year the annual growth rate for February 2017 was 1.85%. The January 2018 growth rate was 2.27%.  The best rate for "any" given year is recorded during February. If February grows at a rate it was during the month of January then, depending upon the seasonal factors used the ADP number could be through the roof. We have to watch the revisions to the data.

Will we see annual growth in the IT sector or Natural Resources?  The IT sector has been a drag on the jobs market for years. Natural resources has seen some volatility due to oil prices. Construction should continue to see gains as the new construction data showed improvement during January. Professional Business Services (PBS,)  Leisure and Hospitality (L/H.) Education and Health Services (EHS,) and Trade, Transportation, and Utility (TTU) have been the strongest sectors in the CES data, and they should continue to show strong annual growth in this week's report.  The month to month growth data indicates that we could see growth in all sectors other than the TTU sector. If we see growth n the TTU then we could have a remarkable month. The Natural resources and Construction sectors may surge - this will not be reflected ass much in the total growth because these sectors are relatively small compared to the other sectors.,

Will we see another number of 250,000 seasonally adjusted  jobs added? The month to month growth  should be better than last February - meaning that we should see over 250,000 seasonally adjusted ADP private sector jobs added this month. We saw 348,000 SA ADP jobs added during April of  2011 as we were climbing out of the recession. We saw 330,000 SA ADP workers added during April of 2014, the best year of President Obama's administration.  We saw 278,000 SA ADP jobs added during February 2012 as the election season was kicking into overdrive.The point is that we could see well over 250,000 SA ADP workers added this month. "Everything depends upon what revisions are made to the prior months of data and what seasonal factors are used to convert the NSA data to the SA data.

Will the ADP data be revised to minimize the annual growth rate? The forecast article for the February CES data projected that the seasonal factor used to convert the NSA CES data to the SA CES data will drop from what it was during  February 2017. This value was the lowest it had been since 2009. We have seen annual declines in the seasonal factor since 2009. It was thought that we could add over 1 million combined full-time and part-time jobs, as we have done each of the past two Februaries.  Unemployment levels, first-time unemployed and continuing unemployment, are phenomenally low.  Expect some of the prior data to be revised higher than reported last month. Boosting previous data will pull down the current month data. Expect a number reported over 250,000. Be pleasantly surprised if the number comes in over 300,000.

It's the economy.