Wall St divided on ADP impact on Friday’s US jobs report

The US private sector had its best month for job creation since 2014 in March, according to the ADP report. A better-than-expected number often prompts economists to revise their estimates for the official US jobs report.

However, economists on Wednesday were divided on what the ADP number means for Friday’s non-farm payroll figures.

The strength of the ADP data left economists at Jefferies scratching their heads. Ward McCarthy, the investment bank’s chief financial economist, lifted his estimate for total March payroll gains to 185,000, from 145,000. He said:

Today’s data is making us scratch our heads once again because we had anticipated some payback following last month’s spike. The rise in ADP payroll significantly exceeds our expectations, and is complemented by another month of solid small firm and medium-sized firm payrolls.

Historically, we have been reluctant to view the ADP data as a reliable barometer of the Private payroll data because of significant slippage between monthly changes in the ADP and BLS employment series.

Citigroup economist Andrew Hollenhorst also boosted his estimate on the back of the figures. He now reckons the world’s biggest developed economy added 175,000 jobs last month, from his previous forecast of 155,000.

Joshua Shapiro, chief US economist at MFR, said the upbeat ADP figures ratchet up expectations for jobs Friday. He upped his payroll forecast to a gain of 235,000 jobs from 185,000 previously.

Spencer Hill at Goldman Sachs said that despite the negative revisions to the February ADP reading, “today’s report likely implies at least some upside risk to Friday’s employment numbers”. The economist added:

More generally, we believe today’s report provides additional evidence of the underlying health of the labor market.

However, Samuel Coffin an economist at UBS, was sceptical noting that ADP’s estimate includes a strong influence from the incoming trend in payrolls. He said:

A simple regression of ADP vs BLS private payrolls and one lag of BLS private payrolls puts about as much weight on the prior BLS figure as on the current month BLS figure. Why is that? ADP gets, in effect, rebenchmarked to payrolls and claims with each report. That’s important because a strong trend coming into a slower payrolls figure can be reflected in ADP upward bias.

Mr Coffin also said the ADP report “tends to be less responsive to weather-affected hiring either on the upside or the downside”. He continues to expect Friday’s non-farm payroll report to show that the US economy created just 155,000 jobs.