ADP Report – It’s Like Getting Wrecked on Your Way to the Bachelor Party

I’m not a big fan of the ADP Private Employment Report, however professional and important it is. For me, it’s sort of like getting wrecked on the way to your bachelor party. It spoils the fun for everyone waiting on the DOL data and provides a less satisfying facsimile of what should have been the last night of single life. The memories it leaves only contribute a bitter taste to the wedding that follows. As they gather up their bit of cake, economists and investors won’t even look you in the eye whilst they chuckle amongst themselves about the night that never was. Of course, just like the case of the premature bachelor and his independent satisfaction, we can never know which data point was actually more accurate. After all, this is the government’s data we are comparing ADP’s result to, and the government may or may not be akin to the group of thugs you may call your friends.

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ADP Report – It’s Like Getting Wrecked on Your Way to the Bachelor Party

Each month, ADP presents its estimate of what the Labor Department will report a day or two later. It’s like a publicly available economist’s estimate, yet the stock market and the popular press anticipate it and react to it as if it were a reflection of an economic reality. If it were perhaps more accurate, or better said - more reflective of the data the government reports (which may or may not be accurate), then it might move the market, but the data has lost its punch over the years, in my view.

Now that we’ve discounted the market impact of the data, we’ll progress to report it to you. Enjoy! ADP published Thursday morning that Private Nonfarm Payrolls likely rose by 157K in June. This is a net estimate of course, as some jobs are lost while others are created. It’s a big number though, given that economists are only looking for the Labor Department’s report to show private nonfarm payrolls rose by 125K in June. It would be good news if we were certain the government’s data could reach the same mark. The problem is that we cannot be certain of anything with regard to these two reports of the same data point (one being an estimate and the other being a possible forgery or more likely a fumble). Relax, we jest of course.

Take last month for instance. ADP reported private nonfarm payrolls likely rose by 38,000, and then the government said two days later that the real number was 83K. Now I realize that an eight and a three are present in each figure, but you would have to be a monkey to see similarity between the two. In its ever diligent fashion, ADP adjusted its estimate for last month to better reflect reality, and so it revised May’s data-point to +36K. Yes, ADP lowered its estimate despite the government data showing a greater degree of job creation than ADP initially estimated. It follows no rhyme nor reason, we know, but it says clearly that ADP is not signing off on the government’s data. So it would appear that ADP values its interpretation higher than the Labor Department while the DOL could care less about what ADP thinks. Which is right? Do you have any darts?

What we know about June so far is that ADP thinks the service sector contributed significantly to job growth, adding some 130K jobs on net. That was three times more than it did in May, and ADP had no problem saying so. The Institute for Supply Management seems to concur, but in an appropriately disjointed fashion. It was just this week, after all, within which ISM reported a decline in its Non-Manufacturing Index (read service sector measure). Declines are not generally good, and neither is this one, but a reading above 50 still marks economic expansion, and ISM marked 53.3 for June. More importantly, ISM’s Non-Manufacturing Employment component Index reached 54.1 (versus 54.0 in May), indicating job additions at a minimum. Both ADP and the government are looking for overall additions, so we suppose you can at least count on that Friday.

The goods producing sector, however, only added 27K jobs in June, according to ADP. That was much improved from the goods sector estimate for a loss of 10K jobs in May. Manufacturing employment was seen adding 24K jobs on net, continuing what appears to be a fragile streak of seven of eight months of growth. The always ailing (or seems so) construction sector lost another 4K jobs in June by ADP’s count. 2.1 million construction jobs have been lost since the industry's employment peaked in January 2007. If you think that’s bad, imagine how many jobs have been lost in construction when including undocumented immigrants. The financial sector, including Wall Street unfortunately, lost 3K jobs in June, allegedly.

Smaller companies continued to provide the jobs according to ADP. Companies with fewer than 50 workers added 88K jobs, with mid-sized firms (50-499) adding 59K. Large companies with 500 or more employees only added 10K jobs according to ADP. I guess in a questionable environment, better to fatten up the balance sheet than to feed some lug’s hungry kid huh?

According to ADP, this type of private sector growth reflects recovery from the spring lull. ADP also advises that the unemployment rate might hold steady or even improve modestly in June based on its view. We’re not sure who is right, but economists surveyed by Bloomberg are looking for the unemployment rate to also hold at 9.1% Friday. I suppose also that in the end the bachelor party doesn’t really matter; it’s the marriage that counts.



Article should interest investors in Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), TD Bank (NYSE: TD), PNC Bank (NYSE: PNC), State Street (NYSE: STT), Janus (NYSE: JNS), T. Rowe Price (Nasdaq: TROW), General Electric (NYSE: GE), Wal-Mart (NYSE: WMT), McDonald's (NYSE: MCD), Alcoa (NYSE: AA), American Express (NYSE: AXP), Boeing (NYSE: BA), Caterpillar (NYSE: CAT), Cisco Systems (Nasdaq: CSCO), Chevron (NYSE: CVX), DuPont (NYSE: DD), Walt Disney (NYSE: DIS), Home Depot (NYSE: HD), Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM), Intel (Nasdaq: INTC), Johnson & Johnson (NYSE: JNJ), Kraft (NYSE: KFT), Coca-Cola (NYSE: KO), 3M (NYSE: MMM), Merck (NYSE: MRK), Microsoft (Nasdaq: MSFT), Pfizer (NYSE: PFE), Procter & Gamble (NYSE: PG), AT&T (NYSE: T), Travelers (NYSE: TRV), United Technologies (NYSE: UTX), Verizon (NYSE: VZ), Exxon Mobil (NYSE: XOM), Paychex (Nasdaq: PAYX), Manpower (NYSE: MAN), Robert Half International (NYSE: RHI), 51Job Inc. (Nasdaq: JOBS), Monster World Wide (NYSE: MWW), Korn/Ferry International (NYSE: KFY), Administaff (NYSE: ASF), Kforce (Nasdaq: KFRC), TrueBlue (NYSE: TBI), Dice Holdings (NYSE: DHX), Kelly Services (Nasdaq: KELYA), SFN Group (NYSE: SFN), CDI Corp. (NYSE: CDI), Cross Country Healthcare (Nasdaq: CCRN), On Assignment (Nasdaq: ASGN), AMN Healthcare Services (NYSE: AHS), Barrett Business Services (Nasdaq: BBSI), Hudson Highland Group (Nasdaq: HHGP), StarTek (NYSE: SRT), RCM Technologies (Nasdaq: RCMT), VirtualScopics (Nasdaq: VSCP), General Employment Enterprises (NYSE: JOB) and TeamStaff (Nasdaq: TSTF).

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