Private US payrolls report lends weight to upcoming QE taper decision

Summary: ADP payrolls up by 568K in September, more than consensus expectation; August increase revised down by 34K; provides “some early encouragement” withdrawal of pandemic jobless benefits encouraging take-up of jobs”; figures up across firms of all sizes, bias towards large firms; around 80% of gain in services sector, led again by leisure/hospitality sector; tapering trigger for Fed should upcoming non-farm payroll report meet expectations.

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 568,000 in September, more than the 430,000 which had been generally expected. August’s increase was revised down by 34,000 to 340,000.

Short-term US Treasury yields moved a little higher on the day while longer-term yields slid a touch. By the close of business, the 2-year Treasury bond yield had added 2bps to 0.30% while the 10-year yield slipped 1bp to 1.52% and the 30-year yield shed 2bps to 2.08%.

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 September 2022 implied an effective federal funds rate of 0.175%, about 10bps above the current spot rate.

ANZ economist John Bromhead said the report “provided some early encouragement” the withdrawal of pandemic unemployment benefits “may be encouraging the take-up of jobs” alongside signs of an easing in US coronavirus infections.

Employment numbers in net terms increased across businesses of all sizes, with a strong bias towards large firms. Firms with less than 50 employees filled a net 63,000 positions, mid-sized firms (50-499 employees) gained 115,000 positions while large businesses (500 or more employees) accounted for 390,000 additional employees.

Employment at service providers accounted for a little under 80% of the total net increase, or 466,000 positions. The “Leisure & Hospitality” sector was the largest single source of gains for a sixth consecutive month, with 226,000 additional positions. Total jobs among goods producers increased by a net 102,000 positions.

Prior to the ADP report, the consensus estimate of the change in August’s non-farm employment figure was 500,000. The non-farm payroll report will be released by the Bureau of Labor Statistics this coming Friday night (AEST), 8 October.

Ray Attrill, NAB’s Head of FX Strategy within its FICC division, said such an increase would be “likely good enough to trigger the Fed into a QE tapering announcement next month.”


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