ADP Payroll and Challenger Jobs – Previewing Friday’s NFP Employment Reports

The employment reports on Wednesday were better than most expected. Or were they just better than most feared? With all of the negative news circulating around the European debacle, it is hard for many to absorb anything that may be good news these days.

But, if you are keeping score of the recent economic releases, the ADP private payrolls and Challenger reports should be viewed on the plus side of the equation. Obviously this is not to be considered a robust hiring environment, but that is to be expected with all that is going on.


ADP’s private payrolls were once again above the 100,000 mark this month. For some time there had been a decent correlation of this report to the “official” NFP payroll report. However, that relationship may not be as closely aligned as once thought. Back in June of 2010 and 2011, there was a wide divergence in the two as ADP showed much healthier job situation. In 2011, just two days after the ADP reported 144,000 jobs created, the NFP reported only 20,000. Markets took the news hard as expectations were far off the mark.


Surely, some seasonality may have come into play and the adjustment for the “birth/death model” may have also provided some reasoning for the differences. Here are some of the important points that we need to know about the recent ADP report:

  1. It showed that almost all of the jobs created were in the services sector.
  2. The manufacturing sector lost workers.
  3. The biggest gains were seen in mid to smaller sized firms.

We also saw that there was a sizable decrease (as compared to last month) in cuts shown in the Challenger Announced Hiring/Firing report.


In fact, last month Challenger reported that the percentage change of layoffs, on a year-over-year basis, was north of 200%. This month it dropped to 12.6%. This is still a heightened level of layoffs, but much more reasonable.

Looking further back, we can see the general trends for both the BLS and ADP reports are much more aligned when isolating the private payrolls. By almost all accounts, the decreases in public payrolls is accelerating. Municipalities and governments are facing record funding shortfalls and they are now cutting jobs like we saw companies do back in 2008.

The average estimate for the NFP report is +95,000 jobs added. 125,000 are expected to be from private additions with 30,000 jobs lost in the public sector. Manufacturing is expected to add 2,000 jobs.

Estimates range from +50,000 (Sean Incremona, 4CAST Ltd.) to +150,000 (Joe LaVorgna, Deutsche Bank Securities).

Estimates from some of the majors:

  • Morgan Stanley & Co.      125,000
  • Goldman, Sachs & Co.      75,000
  • J.P. Morgan Chase                 95,000
  • Moody’s Analytics         100,000

The unemployment rate is expected to stay at 9.1%.

Markets should react favorably to a number close or above the mean estimate. Since Mr. Bernanke just spoke about the FEDs ability to pump more stimulus into the system if needed, it would probably take a number of less than 50,000 or so to do some serious damage to the markets. Even so, most of the recent market volatility has focused on the European crisis and as Greece will be having a vote on the Prime Minister Friday, there will be something otherwise to preoccupy both the bulls and the bears.

Most investors are already of the belief that the economy is slowing, so a negative surprise may not be much of a surprise at all. In addition, the performance chase that is underway into the end of the year will push some that have missed out on the recent rally buying any dips in order to get positioned.

Finally, the U.S. Dollar should see some strengthening if the number exceeds estimates, but that will be fleeting. Even a rate cut by the ECB could not keep the USD strong for too long. So, if there is a weakening due to a negative surprise, that may continue to play into the risk-on trade. If there is a better than expected number, that will provide the bulls reason to buy risk and sell the USD. In other words, we may be back to the Tepper Rally mode.


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