ADP payrolls beats estimates; revisions likely for October NFP

Summary: ADP payrolls up by 571,000 in October, more than consensus expectations; September increase revised down by 45,000; may lead to upward revisions of upcoming non-farm payrolls report; positions up across firms of all sizes, bias again towards large firms; 80% of gain in services sector, led again by leisure/hospitality sector.

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 571,000 in October, more than the 400,000 which had been generally expected. September’s increase was revised down by 45,000 to 523,000.

Ray Attrill, NAB’s Head of FX Strategy within its FICC division, said the figures may result in “some upward revisions” to the upcoming non-farm payrolls report.

US Treasury yields moved moderately higher on the day. By the close of business, the 2-year Treasury bond yield had added 2bps to 0.47%, the 10-year yield had gained 5bps to 1.60% while the 30-year yield finished 6bps higher at 2.02%.

In terms of US Fed policy, expectations of any change in the federal funds rate over the next 12 months firmed a little in favour of earlier rate rises. Federal funds futures contracts for November 2022 implied an effective federal funds rate of 0.50%, 42bps above the current spot rate.

Employment numbers in net terms increased across businesses of all sizes, again with a strong bias towards large firms. Firms with less than 50 employees filled a net 115,000 positions, mid-sized firms (50-499 employees) gained 114,000 positions while large businesses (500 or more employees) accounted for 342,000 additional employees.

Employment at service providers accounted for just over 80% of the total net increase, or 458,000 positions. The “Leisure & Hospitality” sector was the largest single source of gains for a seventh consecutive month, with 185,000 additional positions. Total jobs among goods producers increased by a net 113,000 positions.

Prior to the ADP report, the consensus estimate of the change in September’s non-farm employment figure was 425,000. The non-farm payroll report will be released by the Bureau of Labor Statistics this coming Friday night (AEST), 5 November.

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