How should we interpret yesterday's ADP data?

1 Nov 2018

We continue to prepare our followers to the most important event of the week or probably even of a month - labor market statistics of the USA.

Yesterday, traditionally, a couple of days before official statistics, data from the ADP Research Institute on the level of employment in the private sector were published. Recall, analysts had expected growth rate at 187K. We noted that considering the current form of the US economy, we should expect the fact to exceed the forecast. Actually, the way it turned out - the data came out much better than analysts' expectations and amounted to +227K. This is a great indicator that confirms the fact that the US labor market is in the best form over the last 10 years.

Is it worth it to extrapolate these figures on Friday data on NFP? In yesterday's review, we noted that the level of correlation between data on ADP and NFP is about 25%. So the chances that the coincidence will be intense are not so high (about ¼).

We provide some statistical data (see table below).

Date ADP NFP delta
7.2017 158 222 64
8.2017 178 209 31
9.2017 237 156 -81
10.202 135 -33 -168
11.202 235 261 26
12.202 190 228 38
1.2018 250 148 -102
2.2018 234 200 -34
3.2018 235 313 78
4.2018 241 103 -138
5.2018 204 164 -40
6.2018 178 223 45
7.2018 177 213 36
8.2018 219 157 -62
9.2018 163 201 38
10.202 230 134 -96

As we can see, data on ADP and NFP usually differ significantly. On average, ADP comes out 30K better than NFP data. Tellingly, periods of the excess of ADP over NFP are replaced by an excess of NFP over ADP. That is, it is a high probability that this time (this Friday), the ADP numbers will be worse than the NFP (last month they were much better).

This means that we may fully expect the NFP growth not at 190K, as analysts expect, but at 250-260K. And although the forecast seems quite optimistic, we consider it is realistic, especially given that after the end of the hurricane season, the demand for labor usually increases sharply.

Our recommendations on the dollar are unchanged in this light - looking the points for the dollar purchases.