Thursday, 31 January 2008

ADP report indicates robust job growth

The ADP employment report continues to have a mixed record as a good predictor of non-farm payroll growth. How will this month's data fare? From

The ADP National Employment Report

January, 2008

Nonfarm private employment grew 130,000 from December 2007 to January of 2008 on a seasonally adjusted basis, according to the ADP National Employment ReportTM. The estimated change in employment from November to December was revised down 3,000 to 37,000. January's increase of 130,000 is consistent with nonfarm private employment growth that averaged 110,000 during the three-month period from October through December 2007.

The usual method is to add 25 -30k government jobs to the ADP number to get an approximate number for the NFP report. That would imply job growth of 155k -160k for the NFP report on Friday. However if you used that method in the past two months you would have significantly overestimated job growth.

Forecasters are well aware of false signals from the ADP report and are factoring in job growth of about 70 - 75k in non farm payrolls. That would be tepid growth but it is not yet recessionary. That said, recessions usually begin while payroll growth is still positicve. It's not until well into a recession that job growth goes significantly negative.