Reclaiming Common Sense

Some Strength and Some Weakness in the ADP Report

The Monthly ADP Payroll report receives some headlines because it gives us some insight into the Monthly Employment Situation Report. There is rarely a direct correlation  to the levels reported in the two reports because the headline ADP number is a private sector jobs number while the "Jobs Report" number is the non-farm payroll worker number. The article "May ADP Forecast: Gains in All Sectors" examined month to month and year to year trends. It was projected that we should have seen month to month gains in all sectors and that there could have been a May to May decline in Information and Technology (IT) workers, seasonally adjusted.  The Jobs Forecast article "May Jobs Report Forecast: Strengthening" projected a significant drop in the unemployment and a sharp rise in full-time jobs, for the private sector, non-seasonally adjusted. What happened this month?

There were mixed messages this month. There was ADP Payroll growth in all sectors except Information Technology, as was expected. The interesting data was in the Construction, Manufacturing, and Natural Resources sectors. There were significant revisions to the data from March and April. The downward revisions were most significant in the Leisure and Hospitality Sector, the Trade, Transportation, and Utility Sector, and the Education and Health Services Sector.

Month to Month Growth was faster than some prior Mays, slower than others. The April to May growth was slower expected. Construction jumped the most that it has during the month of May since 2003 . Natural resources had its best May. Professional and Business Service jumped. IT was up while TTU faltered. The Total growth rate was 0.14%. The projected rate was 0.17% to 0.19%.

Year to Year Growth slowed instead of accelerating. It was projected that the rolling year growth rate would exceed 1.90%. The seasonally adjusted growth rate dropped to 1.81%. This is the slowest annual growth rate since the end of the recession.

Year to Year growth was negative only in the IT Sector. It was projected that we could have year to year slowing in the IT sector. What is very interesting is the scope of growth in the Construction sector. We have seen improvement in the new construction data, so the growth in construction payrolls makes sense. There was also strengthening in the Manufacturing sector and the Natural Resources sector.

The question is will Payroll Growth be reflected in the seasonally adjusted worker data this Friday? We know that the ADP Payroll data is a better comparison to the Total Private Sector data than it is with the headline seasonally adjusted non-farm payroll data. We know that seasonal factors change from month to month, season to season, year to year, and data set to data set. We have know idea what the seasonal factors are that are used to convert the non-seasonally adjusted ADP data to the seasonally adjusted payroll data. The public has no access to the non-seasonally adjusted data. The ADP data has been massaged this year. The data revisions took us from strong growth to "ho hum" growth. Unemployment levels have fallen. Will there be any correllation with the Jobs Report data? We will know in two days.

It's the economy.