ADP report misses, eyes on upcoming non-farms report

Summary: ADP payrolls up by 374K in August, less than consensus expectation; July increase revised down by 4K; correlation between ADP, non-farm payrolls “poor in recent months”; figures up across firms of all sizes, bias towards mid-sized, large firms; around 90% of gain in services sector, led again by leisure/hospitality sector; August non-farm payrolls figure important for expectations regarding Fed’s tapering.

The ADP National Employment Report is a monthly report which provides an estimate of US non-farm employment in the private sector. Since publishing of the report began in 2006, its employment figures have exhibited a high correlation with official non-farm payroll figures, although a large difference can arise in any individual month.

The latest ADP report indicated private sector employment increased by 374,000 in August, less than the 650,000 which had been generally expected. July’s increase was revised down by 4,000 to 326,000.

ANZ economist Daniel Been noted the correlation between the ADP’s figures and non-farm payrolls “has been poor in recent months…”

Longer-term US Treasury yields crept a little lower on the day. By the close of business, 10-year and 30-year Treasury bond yields had each slipped 1bp to 1.30% and 1.92% respectively. The 2-year yield finished unchanged at 0.21%.

In terms of US Fed policy, expectations of any change in the federal funds rate over the next 12 months remained soft. Federal funds futures contracts for July 2022 implied an effective federal funds rate of 0.125%, about 6bps above the current spot rate.

Employment numbers in net terms increased across businesses of all sizes, with a bias towards mid-sized and large firms. Firms with less than 50 employees filled a net 86,000 positions, mid-sized firms (50-499 employees) gained 149,000 positions while large businesses (500 or more employees) accounted for 138,000 additional employees.

Employment at service providers accounted for a little under 90% of the total net increase, or 329,000 positions. The “Leisure & Hospitality” sector was the largest single source of gains for a fifth consecutive month, with 201,000 additional positions while the “Education & Heath” sector accounted for another 59,000. Total jobs among goods producers increased by a net 45,000 positions.

Been added “markets will be watching the August non-farm payrolls figure closely” as he thought it will affect expectations of when the Fed will start tapering of its bond purchase programme.

Prior to the ADP report, the consensus estimate of the change in August’s non-farm employment figure was 787,000. The non-farm payroll report will be released by the Bureau of Labor Statistics this coming Friday night (AEST), 3 September.

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