Summary: ADP payrolls up 324,000 in July, considerably more than consensus expectations; June revised down by 42,000; slowdown in pay growth without broad-based job loss; NAB: report suggests upside risks to July NFP result although a poor indicator; positions up in small and medium businesses, down in large ones; little under 95% 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 workers in the private sector. Publishing of the report began in 2006 and its figures exhibited a high correlation with official non-farm payroll figures even though large differences arose in individual months. A major revamp of the ADP report took place in mid-2022, materially altering the data. However, month-on-month changes in the non-farm payroll data and ADP series are still highly correlated.
The latest ADP report indicated private sector employment increased by 324,000 in July, considerably more than the 185,000 increase which had been generally expected. June’s rise was revised down by 42,000 to 455,000.
“The economy is doing better than expected and a healthy labour market continues to support household spending,” said ADP Chief Economist Nela Richardson. “We continue to see a slowdown in pay growth without broad-based job loss.”
US Treasury yields generally moved higher on the day, although short-term yields declined. By the close of business, the 2-year had lost 2bps to 4.89%, the 10-year yield had gained 6bps to 4.09% while the 30-year yield finished 9bps higher at 4.18%.
In terms of US Fed policy, expectations of a lower federal funds rate in the first half of 2024 softened a touch. At the close of business, contracts implied the effective federal funds rate would average 5.345% in September, slightly above the current spot rate, and then increase to an average of 5.375% in October. December futures contracts implied a 5.39% average effective federal funds rate while August 2024 contracts implied 4.67%, 66bps less than the current rate.
Tapas Strickland, NAB Head of Market Economics said the report “suggests upside risks to Friday’s Payrolls” while also acknowledging “these figures are a poor indicator of official payrolls…”
Employment numbers in net terms increased at small and medium-sized businesses while contracting large enterprises. Firms with less than 50 employees gained a net 237,000 positions, mid-sized firms (50-499 employees) added 138,000 positions while large businesses (500 or more employees) accounted for 67,000 fewer employees.
Employment at service providers accounted for a little under 95% of the total net increase, or 303,000 positions. The “Leisure and hospitality” sector again was the largest single source of gains, with 201,000 more positions. Total jobs among goods producers increased by a net 21,000 positions.
Prior to the ADP report, the consensus estimate of the change in July’s official non-farm employment figure was +190,000. The non-farm payroll report will be released by the Bureau of Labor Statistics this coming Friday night (AEST), 4 August.