ADP Downside Surprise

Private nonfarm payrolls down 301K vs. +207K consensus (Bloomberg). Still, don’t over-read.

Figure 1: BLS private nonfarm payroll employment from December release (black), Bloomberg consensus as of 2/1 (teal square), ADP (red). Source: BLS, Bloomberg, and ADP via FRED.

ADP private nonfarm has not tracked BLS private nonfarm very well in levels; and not in differences either, in recent months. (See this post for pre-covid era analysis.)

Figure 2: Change in BLS private nonfarm payroll employment from December release (black), Bloomberg consensus as of 2/1 (teal square), ADP (red). Source: BLS, Bloomberg,  ADP via FRED, and author’s calculations.

The US (total) nonfarm payroll 95% confidence interval is +/- 110K (BLS)

For this sample (arbitrarily chosen), the regression coefficient of change in BLS series on change in ADP series  1.03 (significant at the 1% msl, using HAC robust standard errors), and the regression yields an adjusted R-squared of 0.86 (2020M05-21M12). A regression using log first differences yields similar R-squared. The point estimate for 2022M01 from this regression is -186K, but the 60% prediction interval is [269,=640] – in other words, the incremental information from the ADP release is still pretty small.