Given ADP’s recent track record vis-à-vis NFP, I suppose it would be foolish to put too much stock (figuratively or literally) in the latest read on private sector employment.
For three consecutive months, ADP has proven a poor guide when it comes to predicting nonfarm payrolls, and subsequent revisions have been laughably large. In July, for example, ADP posted the largest miss in history, only to be followed up by another big beat on NFP.
Still, market participants were interested for any clues as to whether August payrolls — due Friday, ahead of the long US weekend — will live up to lofty expectations for another big gain. With that as the backdrop, ADP said US firms added 428,000 jobs in August, less than half of the 1 million consensus was looking for.
July’s print was revised higher, but not by much — to 212,000 from 167,000. That will likely be contrasted with last month’s headline NFP print. The disparity is huge and thereby hard to ignore. June was revised higher to 4.49 million from 4.31 million.
The breakdown for August shows the gains were broad-based, with all firm sizes adding positions and both the services and goods-producing sectors posting gains. Leisure and hospitality and education led gains in service sector employment.
ADP says 28,000 construction jobs were added in August, along with 2,000 in mining and natural resources, and 9,000 in manufacturing.
Midsized firms added 79,000 positions last month, while small employers logged a 52,000 gain. Large firms dominated the hiring impulse, adding nearly 300,000 positions.
Again, ADP has failed spectacularly to predict NFP in the post-pandemic world, and forecasters have been equally inept. So it’s not entirely clear that much can be gleaned from this.
If you came into Wednesday not expecting consensus to be any kind of guide, you could plausibly suggest this isn’t actually a “bad” report, despite the ostensible “miss”.
More broadly, the macro narrative remains the same.
“The midsummer resurgence of COVID-19 cases combined with the reality that the path to re-opening the domestic economy has proven more challenging than most anticipated contributes to the collective sense that many firms will soon be forced to make difficult decisions regarding the viability of present business models and staffing levels”, BMO’s Ian Lyngen, Benjamin Jeffery and Jon Hill said Friday, adding that “while this process had been delayed by the initial stimulus efforts on the part of Washington and the Fed, as the bailout programs run their course and the fiscal efforts are exhausted, the new normal (and all its uncertainty) comes into focus”.
I couldn’t have said it better myself.