Summary: ADP payrolls up 475,000 in February, greater than consensus expectations; January figure radically revised up; track record of predicting official payrolls reports questioned; positions down in small firms but up in larger businesses; just under 90% of gains in services sector, led by leisure/hospitality sector.
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 475,000 in February, greater than the 310,000 increase which had been generally expected. January’s 301,000 fall was revised up radically by 810,000.
NAB currency strategist Rodrigo Catril said, “The survey hasn’t had a good track record in predicting non-farm payrolls in recent months…”
The report was released on the same day as US Fed chief Jerome Powell testified before a congressional committee. Treasury bond yields jumped and, by the close of business, the 2-year Treasury bond yield had gained 19bps to 1.53%, the 10-year yield had added 17bps to 1.90% while the 30-year yield finished 16bps higher at 2.28%.
In terms of US Fed policy, expectations for higher federal funds rates over the next 12 months firmed considerably. At the close of business, March contracts implied an effective federal funds rate of 0.21%, 13bps higher than the current spot rate. June contracts implied 0.785% while March 2023 futures contracts implied an effective federal funds rate of 1.69%, 161bps above the spot rate.
Employment numbers in net terms increased across medium and large businesses while small businesses shed employees. Firms with less than 50 employees shed a net 96,000 positions, mid-sized firms (50-499 employees) added 18,000 positions while large businesses (500 or more employees) accounted for 552,000 fewer employees.
Employment at service providers accounted for just under 90% of the total net increase, or 417,000 positions. The “Leisure & Hospitality” sector was the largest single source of gains, with 170,000 more positions. The “Trade, Transportation & Utilities” and “Professional & Business” sectors were also significant source, each adding 98,000 positions and 72,000 positions respectively. Total jobs among goods producers increased by a net 57,000 positions.
Prior to the ADP report, the consensus estimate of the change in February’s official non-farm employment figure was +400,000. The non-farm payroll report will be released by the Bureau of Labor Statistics this coming Friday night (AEST), 4 March.