ADP prospects in the United States: Although it has differentiated from non-agricultural, the popularity of "small non-agricultural" still cannot be underestimated

The market currently predicts that ADP's private sector employment will increase by 430,000 in September. The number of ADP employed in July and August was about half of what was expected. The September non-agricultural employment data is the key to the Fed's reduction of debt purchases.

ADP data and non-agricultural data are differentiated

Recently, the monthly correlation between the number of private employment from the Automatic Data Processing Corporation (ADP) and the national data of the Ministry of Labor is weak. However, these data came in a timely manner, released two days earlier than the government data, and they are the largest data in the country outside the non-farm employment report. Currently, analysts expect ADP's US companies to add 430,000 employees in September.

In the past six months, ADP data has failed to provide an early warning of fluctuations in non-agricultural data. In April, the market expected the non-agricultural employment population to increase to 978,000 from 785,000 in March. However, the actual number of non-agricultural employment was beyond market expectations, and only 269,000 new jobs were provided. The ADP employment change report rose from 519,000 to 662,000 that month.


(U.S. ADP employment population historical data)

In July, the non-agricultural employment population increased from 962,000 in June to 1.053 million, the best total since August 2020. In contrast, ADP's July data dropped from 741,000 to 326,000. Finally, the number of non-agricultural employment in the United States fell by 818,000 last month to 235,000. The August ADP data rose slightly from above 326,000 to 374,000.


(History of non-agricultural employment population in the United States)


From another perspective, in the five changes in the past six months, the non-agricultural employment population and ADP moved in the same direction only once, and that was in May. In the long period before this, the trend correlation between non-agricultural employment population and ADP is quite good. Both reports fell sharply in April 2020, followed by a large number of re-hiring in the following three months, and both reported negative values in December last year.

The trend of the U.S. labor market is hard to discern

For months, the US labor market has been publishing some confusing data. The number of jobs offered in August reached a record close to 11 million, while only 235,000 were recruited that month.


(Job vacancy at JOLT's in the US)

The situation of the initial application for unemployment benefits also forms another contrast. Despite the huge number of job vacancies, weak recruitment in August, and non-agricultural employment data in September are expected to be flat, the number of people applying for unemployment benefits for the first time has increased for three consecutive weeks. The number of applicants for unemployment benefits has increased from the lowest level of 312,000 in the week of September 3 to 32,000.

Another strange phenomenon is the unemployment rate. Ignoring the changes in recruitment this year, the rate is declining every month, from 6.3% in January to 5.2% in August.


(U.S. unemployment rate)

Officials and analysts believe that one of the reasons workers are clearly reluctant to return to work is that the Biden administration has extended the period of federal unemployment benefits. These supplementary subsidies expire in early September, so a large number of people are expected to return to work. However, the market does not seem to have strong confidence in employment recovery, and the non-agricultural employment population in September is expected to be only 45,000.

Some analysts also believe that the epidemic and its countermeasures have created a new economic situation, so that standard statistics, indicators, and analysis at best can only reflect part of what is happening in the labor market.

What is the outlook for the Fed's cuts?

The market is waiting for the Fed to confirm its plan to reduce the scale of bond purchases. The information that is good for a quick cut will support U.S. Treasury bond interest rates and the U.S. dollar. The dynamics of the labor market may have changed, but market transactions are based on traditional information and its impact on policy. Strong non-agricultural employment data will make it easier to explain and prove the reduction in debt purchase plans.

The ADP report may not be a reliable indicator of American employment, but as the most valuable data before non-agricultural, investors still inevitably pay attention to it. The changes in this data may still have a certain impact on the market.