Reclaiming Common Sense

The Monthly ADP Payroll report is released the Wednesday prior to the release of the monthly Employment Situation Report. The ADP report is different from the Jobs Report in a number of ways.

  • ADP produces only seasonally adjusted data
  • ADP measures Jobs, and is comparable to the CPS (Current Population Survey) data.
  • ADP is a Private Sector database, it excludes the government sector. This compares to the Private Sector Current Employment Statistics (CES) data. The Headline data is the Seasonally Adjusted Non-farm Payroll (NFP) data. The NFP data includes the Government data.
  • Both the ADP and CES data measure employer payroll data. The ADP data is compiled from a larger sample size than the CES data.

It is for these reasons that the ADP data differs from the seasonally adjusted (SA) NFP headline number. The difference in the ADP and CES data was noticeable until the ADP was revised this February. The ADP data was revealing a growing payroll base during 2017, with the January 2018 growth rate being 2.27% pre-revisions and 1.80% post-revisions. Monthly and annual growth rates are important. The forecast for the Employment Situation Report was for 274,000 What is expected from the ADP Report this month?

Year to Year Growth is expected in all sectors. It is clear from the data that during 2008 and 2009 there were contractions in the payroll in every sector except Education and Health Services (EHS.) WE saw protracted contractions in Construction, and Information Technology (IT.) WE also saw protracted contractions in Leisure and Hospitality (LAH,) and Trade, Transportation, and Utilities (TTU.) These sectors are important to note because the Employment Situation data indicates that LAH, EHS, and TTU are three of the lowest paid sectors. The largest growth that we have seen since the recession, during May, have been LAH, EHS, and professional business services (PBS.) Also note the May spikes in Construction and Financial Services.

Can year to year growth approach 2.00% this May?  Last month the annual growth rate was 1.89%. The trajectory is back to being upward after the data revisions. There is approximately a 12,000 job difference for every 0.01% of annual growth this month. If we grow at the same rate as we did last month (1.89%) then we could see an ADP value of 210,000 reported. If we grow at 1.93%, the revised value for May 2016, then we could add 262,000 workers to the payroll numbers. Could it hit 1.97%? If so we could see more than 300,000 added to the ADP payroll number.

Month to month growth is painting a similar picture. The month to month growth during May 2017 was 0.16%. The month to month growth during May 2014 was 0.18%. Last month we were at 0.15%. Monthly payroll growth can spike between April and May, as it did during 2012, 2015, and 2017. A value between 0.18% and 0.21% seems entirely possible.

Will we see continued growth in Leisure and Hospitality, Trade, Transportation, and Utilities, as well as Education and Health Services? It is very possible that we will see month to month growth in all ADP sectors. The one question mark is the growth or contraction in the IT sector. Nine out of fifteen May reporting periods we have seen IT drop. The April construction data pointed to higher starts and completion activity continuing through the Summer. Ironically, the LAH sector could grow the least during May. Last May it barely grew at all.  Will we see another spike in natural resource hiring as we experience gasoline price hikes at the gas stations? Anticipate a spike in Construction hiring as we move into prime building weather. Big moves in LAH, TTU, and EHS could move the ADP Payroll number considerable higher.

Net-Net: Expect an ADP number Between 230,000 and 262,000. There are indications that the ADP number could be as low as 214,000. That seems unlikely. We were growing at over 2% during January, pre-revisions. A 2.01% growth rate gets us an increase of 358,000 jobs. That seems unlikely. The overlap between the month to month and May to May growth overlap on the high side between 231,00 and 262,000. Expect a number of approximately 245,000 jobs added in the private sector. Remember that the Employment Situation Forecast is projecting roughly 274,000 workers added to the economy.

It's the economy.