The disconnect between the ADP Report and the Employment Report

Last Friday the final monthly Employment Report of 2017 was released. It was widely interpreted as being a disappointment given the topline miss. For the month of December employment gains came in at 148k versus Bloomberg consensus that was calling for a more robust 191k. However, the specifics within the report were encouraging.

The official unemployment rate remained at 4.1%, near full employment and a 17-year low. Importantly, the prior month’s (November) report was revised higher from an initial 228k to 252k. Private payrolls were also revised higher for the previous month from 221k to 239k. Manufacturing payrolls were not revised from the initial gain of 31k in November, but December saw a gain of 25k versus consensus that was calling for 15k. The Participation Rate remained level for the month at 62.7%. Finally, Average Hourly Earnings came in at a healthy 0.3%, up from November’s revised 0.1% and the Average Workweek remained unchanged at 34.5 hrs. In short, though the topline was weaker than expected, revisions for November and other data within the report all speak to a solid month for employment.

If anything, this report once again reflects the disconnect between the ADP Report and the Employment Report. The ADP Employment Report for December, released Wednesday, wowed the street with a gain of 250k versus expectations of 188k. As I have mentioned in previous notes, though the ADP Report remains a central pillar, in the view of many, as a way of gauging the health of the employment landscape, it no longer correlates very closely with the monthly Employment Report.

This week’s economic calendar starts off with a whisper and ends with a bang – particularly for those looking closely at inflation and the follow through impact on monetary policy. On Tuesday we receive the NFIB Small Business Optimism Index for December. Bloomberg consensus is calling for a slight uptick to 107.9 from November’s 107.5. In that event, the reading would be at another post “Great Recession” high. On Wednesday the all-important Atlanta Fed Business Inflation Expectations report is released. On Thursday the PPI-FD for December is released. If recent trend is any indication of what to expect, we should see further modest signs of inflationary pressure. In the August PPI-FD release, the reading for July was 1.9% while the more recent release for November was 3.1%. The December CPI and Retail Sales figures come out on Friday along with November’s Business Inventories data.

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