ADP report "bolsters" consensus view on upcoming US non-farm payrolls

Summary: ADP payrolls up by 534,000 in November, slightly more than consensus expectations; October increase revised down by 1,000; "bolsters" consensus expectations of upcoming US non-farm 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 534,000 in November, slightly more than the 515,000 which had been generally expected. October’s increase was revised down by 1,000 to 570,000.

Ray Attrill, NAB’s Head of FX Strategy within its FICC division, said the “outcome nevertheless dampens the hopes of some that we would finally see another blockbuster payrolls number…” He said the report “bolsters the consensus view for payrolls to print near 550,000 tomorrow night.”

The report was released on the same day as the ISM’s latest manufacturing PMI figure and US Treasury yields moved lower on the day. By the close of business, the 2-year Treasury bond yield had slipped 1bp to 0.55%, the 10-year yield had shed 4bps to 1.41% while the 30-year yield finished 5bps lower at 1.74%.

In terms of US Fed policy, expectations of any change in the federal funds rate over the next 12 months firmed a little more in favour of earlier rate rises. Federal funds futures contracts for December 2022 implied an effective federal funds rate of 0.61%, 53bps 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 142,000 positions while large businesses (500 or more employees) accounted for 277,000 additional employees.

Employment at service providers accounted for just under 80% of the total net increase, or 424,000 positions. The “Leisure & Hospitality” sector was the largest single source of gains for an eighth consecutive month, with 136,000 additional positions. The “Professional & Business” sector was also a significant contributor, adding 110,000 positions. Total jobs among goods producers increased by a net 110,000 positions.

Prior to the ADP report, the consensus estimate of the change in October’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), 3 December.

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