Summary: ADP payrolls up 497,000 in June, more than double consensus expectations; May increase revised down by 11,000; NAB: report has raised June non-farm payroll forecasts; positions up in small and medium businesses, down in large ones; little over 75% 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 both the non-farm payroll data and ADP series are still highly correlated.
The latest ADP report indicated private sector employment increased by 497,000 in June, more than double the 225,000 increase which had been generally expected. May’s rise was revised down by 11,000 to 267,000.
NAB Head of Market Economics Tapas Strickland said the figures should have some effect on forecasts for the upcoming June non-farm payrolls report. “On the back of the data a few analysts have lifted their Payroll expectations tonight; consensus sits at 230,000.”
US Treasury yields moved higher on the day, aided by the latest ISM services report which was also stronger than expected. By the close of business, the 2-year had added 5bps to 5.00%, the 10-year yield had gained 10bps to 4.04% while the 30-year yield finished 7bps higher at 4.00%.
In terms of US Fed policy, expectations of a lower federal funds rate in the first half of 2024 softened. At the close of business, contracts implied the effective federal funds rate would average 5.11% in July, 3bps more than the current spot rate, and then increase to an average of 5.295% in August. December futures contracts implied a 5.43% average effective federal funds rate while June 2024 contracts implied 5.035%, 4bps less than the current rate.
Employment numbers in net terms increased at in small and medium-sized large businesses while contracting large enterprises. Firms with less than 50 employees gained a net 299,000 positions, mid-sized firms (50-499 employees) added183,000 positions while large businesses (500 or more employees) accounted for 8,000 fewer employees.
Employment at service providers accounted for a little over 75% of the total net increase, or 373,000 positions. The “Leisure and hospitality” sector was the largest single source of gains, with 232,000 more positions. Total jobs among goods producers increased by a net 124,000 positions.
Prior to the ADP report, the consensus estimate of the change in June’s official non-farm employment figure was +200,000. The non-farm payroll report will be released by the Bureau of Labor Statistics this coming Friday night (AEST), 7 July.