Summary: ADP payrolls up 247,000 in April; less than consensus expectations; March rise revised up by 24,000; positions up in medium, large businesses, down in small ones; little over 80% of gains in services sector, again led by leisure/hospitality sector; NAB: should not change expectations for upcoming non-farm payrolls report.
The ADP National Employment Report is a monthly report which provides an estimate of US non-farm employment in the private sector. Since publishing of the report began in 2006, its employment figures have exhibited a high correlation with official non-farm payroll figures, although a large difference can arise in any individual month.
The latest ADP report indicated private sector employment increased by 247,000 in April, less than the 385,000 increase which had been generally expected. March’s rise was revised up by 24,000.
The report came out on the same day the US Fed raised its federal funds target range by 50bps, sending most Treasury bond yields lower in relief the Fed is not considering larger moves. At the close of business, the 2-year Treasury bond yield had shed 11bps to 2.65% and the 10-year yield had lost 3bps to 2.95%. However, the 30-year yield finished 3bps higher at 3.04%.
In terms of US Fed policy, expectations for higher federal funds rates over the next 12 months softened. At the close of business, June contracts implied an effective federal funds rate of 1.105%, 29bps higher than the current spot rate. July contracts implied 1.43% and May 2023 futures contracts implied an effective federal funds rate of 3.14%, 232bps above the spot rate.
Employment numbers in net terms increased at medium-sized and large businesses while contracting in small enterprises. Firms with less than 50 employees lost a net 120,000 positions, mid-sized firms (50-499 employees) added 46,000 positions while large businesses (500 or more employees) accounted for 321,000 more employees.
Employment at service providers accounted for a little over 80% of the total net increase, or 202,000 positions. The “Leisure & Hospitality” sector again was the largest single source of gains, with 77,000 more positions. The “Professional & Business” and “Education & Health” sectors were also significant sources, each adding 50,000 positions and 48,000 positions respectively. Total jobs among goods producers increased by a net 46,000 positions.
Prior to the ADP report, the consensus estimate of the change in April’s official non-farm employment figure was +390,000. NAB’s Head of FX Strategy within its FICC division, Ray Attrill, does not view the ADP report as a useful indicator of official non-farm payrolls and he said the result should not “change expectations for non-farm payrolls at the end of the week, given its non-existent track record in predicting that official figure.” The non-farm payroll report will be released by the Bureau of Labor Statistics this coming Friday night (AEST), 6 May.