ADP Payrolls Set to Ease

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Traders will be looking to the (Automatic Data Processing) ADP payrolls report due later today. The report released by the private payrolls processing firm ADP will set the tone for this Friday’s nonfarm payrolls report.

But given the fact that the ADP report is confined to just about 411,000 firms in the United States, the data is limited in scope.

Still, the trends are something that investors look towards in assessing how the US official payrolls will result.

ADP Payrolls Change, August 2019
ADP Payrolls Change, August 2019

The general view is for hiring in the private sector to slow in September. Thus, the market estimates that ADP payrolls will rise by 140,000.

This comes after the report in August showed an increase of 195,000. The data, back then, beat the consensus estimates of 148,000.

However, we will see some revisions to the data for August.

The three-month moving average trends in the ADP reports have been consistently falling. The moving average of payrolls declined from just around 250,000 in February to 100,000 in July.

The steep decline was partly due to the report for May.

In May this year, ADP showed just a 41,000 increase from the month before. This was one of the worst headline releases since the markets bottomed in May 2010. The declines came mostly from small firms with less than 50 employees.

The ADP payrolls report comes as investors try to place how the US economy is faring. There is no doubt that the economy is in the late-cycle state of expansion. This is evident from the fact that despite expansion, the pace of growth has slowed.

The private sector payrolls have been steadily rising since the drop in May. Private payrolls have increased for three consecutive months so far.

Keep an Eye on Previous Data Revisions

ADP payrolls have been rising above the three-month moving average for the past two months. However, remember that the report consistently also revises the previous month’s data.

The jump in payrolls in August was stronger than expected. When compared to the official payrolls report, this was a large increase. Therefore, there is a good chance that ADP’s August payrolls could be revised lower.

On a year to date basis, the average pace of payroll growth has been somewhat slower. However, if the current trend continues, we could expect to see this gap narrow. This still would be a slower pace of hiring comparing to the year before.

The ADP payrolls report will, at best, give insights into the general trends in hiring. With wage growth averaging between 0.3% and 0.4% on a monthly basis, the growth has been sluggish at best.

Another thing to look into will be the effects of the trade wars. There has been much talk about the US and China trade wars impacting the US economy including the labor market.

However, the current slowdown in the labor market is certainly not entirely due to the trade wars. With overall growth slowing, demand in various sectors has been somewhat slow.

This has largely led to the weaker pace of hiring. Furthermore, despite a weaker pace of average earnings, inflation remains tame. This puts not much pressure on consumers in the short term.

In conclusion, the ADP payrolls report for September is likely to come in line with the estimates. It will be Friday’s official payrolls report that will be more closely watched.

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