Wednesday’s ADP employment report showed a monthly change of a slight decrease from 253,000 down to 213,000. The figure was also under the 225,000 that had been forecast.This was another economic indicator that has been released on the US which has missed expectations and helped to continue this corrective phase that the US dollar has fallen into. However what does this tell us for Non-farm Payrolls today?
The chart below shows Non-farm Payrolls (blue) and its moving average (bold blue) and the ADP employment number (yellow) and its moving average (bold yellow). There is a decent correlation (pink line) between ADP and the payrolls headline (currently 0.65). Furthermore, ADP seems to have been improving as a predictor since late 2014.
I have attempted to smooth out the data by calculating a 6 month moving average of both Non-farm Payrolls (in light blue) and the ADP employment (in yellow). the moving averages have been on an improving trend in the past two years but ADP seems to be beginning to tail off whilst the Non-farm Payrolls moving average is steady in its advance. ADP has already been announced and fell quite strongly, this could suggest that with the correlation continuing to improve over recent months, that the Non-farm Payrolls moving average could be set to decline slightly and to do this it would need the data to come in below the 234,000 expectation.
The chart below shows Nonfarm Payrolls (blue bar) with the consensus forecasts (orange mark) every month. At the original announcement of the report (ie. before any revisions) shows 7 months have beaten expectations, and 5 have missed.
The chart below shows ADP employment (blue bar) with the consensus forecasts (orange mark) every month. The forecasts are equally spread on ADP, with 5 beats, 7 misses and one almost bang on (within 1,000).
In the past 12 months (ie. not including this current month) there has been a similar beat of expectations or miss of expectations on both Non-farm Payrolls and the ADP data in 7 out of the 12 months.
So, what can we take from all of this? Well perhaps not a great deal if the statistics are anything to go by. The correlation between the two sets of data seems to be improving but it is nowhere near as strong as it was back in 2010. The trend is that both continue to improve but at a solid pace, whilst the dip in ADP on Wednesday suggests a fall back of the Non-farms. My guestimate is for a slight miss of the 234,000 that the market is forecasting. I will say 223,000.
The impact of this would be a perception of the continuation of slightly weaker US data and this would put further pressure on the correction on the US dollar today. Of course if Average Hourly Earnings comes in very strong (i.e. above +0.3% month-on-month) then this would mitigate any payrolls weakness.
I hope that this helps, but I am not sure that it has…