ADP Outperforms Again: 235K New Jobs

Wednesday, March 7, 2018

Market futures are pointing lower ahead of today’s opening bell, and the release of new private-sector payroll data from Automatic Data Processing (NASDAQ:ADP) — which was again far above expectations — has done very little to quash this. Currently, the Dow looks to open more than 200 points lower, with the S&P 500 and Nasdaq in the red, as well.

ADP’s monthly payroll report says the private sector brought 235K new jobs to the U.S. in February, similar to the 234K initially reported in January — which has been revised upward to 244K. Considering that expectations for both months were in the 180-200K range, we continue to see outstanding jobs growth in the domestic labor force. It also marks 5 straight months with private-sector jobs tallying more than 200K.

Services typically led the way with 198K new jobs, but Goods brought 37K as well. Construction made up 21K of those and Manufacturing another 14K — well above trends of the past few years.

In fact, the Goods side of jobs growth often roughly equates the monthly positive surprises we’ve seen for the past half-year or more. Leisure and Hospitality led the way with 50K new private-sector jobs, Trade and Transportation reached 44K and Education and Healthcare brought 43K. Medium-sized businesses (between 50 and 499 employees) saw the biggest gains with 97K jobs.

The ADP report is the precursor to Friday’s non-farm payroll report from the Bureau of Labor Statistics (BLS), which had also previously been guiding to around 180K monthly job growth. For February, however, we see the consensus up to 205K — over time (sometimes not initially), the ADP and BLS numbers do tend to demonstrate the same growth trends, even as the BLS also accounts for Government jobs, including on the state and local levels.

What we may expect to see in Friday’s report is an Unemployment Rate that has fallen to 4.0% or perhaps even lower. Surely with such robust labor market growth — unprecedented in some respects, regarding the modern U.S. economy — we can expect to see evidence of the same turning up in the BLS figures. Importantly, this may also include meaningful wage growth — something market analysts as well as members of the Fed will be paying close attention to.

Wage growth, both month over month and year over year, is a common forward indicator of rising economic inflation. And with a tight labor market getting even tighter, with wage growth having headed north around 30 basis points a month in recent times, this may lead the way toward more aggressive Fed policy in raising interest rates. Add onto this a massive influx of business capital by way of corporate tax cuts, and it’s easy to see why so many market participants have inflation on their minds currently.

And this may also be the reason why such healthy private-sector labor market numbers have thus far failed to move the needle on market futures thus far ahead of Wednesday’s open.

Mark Vickery
Senior Editor

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