For those using data from ADP Employer Services to formulate a U.S. payroll forecast, beware of December, said economists like JPMorgan’s Michael Feroli and Barclays Capital’s Michael Gapen.
“I don’t think ADP has been particularly useful in forecasting” the government’s employment figures, Feroli said in a telephone interview from his New York office. “ADP has historically had problems in December because of a variety of technical reasons.”
Chief among those is the so-called purge effect. Workers, regardless of when they are dismissed or quit, sometimes remain on company records until December, when businesses update, or purge, their figures with ADP. The Roseland, New Jersey-based paycheck processor estimates this change when adjusting its data for seasonal changes and the company’s projection may have been too large this year because there were fewer firings than in previous years, economists said.
Companies added 113,000 workers to their payrolls last month, figures for the Labor Department showed today in Washington, 184,000 fewer than ADP predicted two days ago. That’s the largest ever gap ADP has had on an initial private payroll forecast for December, said Joel Prakken, chairman of Macroeconomic Advisers LLC, which puts out the figures with ADP, said in a telephone interview today.
“That’s a big miss for any month and a big miss for December,” said Prakken. Still, he said, “it’s more interesting to look at these numbers when all the revisions are in. Today’s payrolls report showed revised private job gains of 79,000 in November, up from an initial figure of 50,000. ADP’s first estimate for November was 93,000.
ADP’s December estimate of 297,000 prompted 22 economists, including forecasters at Morgan Stanley and Deutsche Bank Securities Inc. in New York, to raise their forecasts.
“We view the ADP as a good indicator of directional trends, but not the magnitude,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who bumped up his forecast following the ADP report, said in an interview today. LeBas said ADP data may be picking up more hiring from small businesses, which the government’s jobs report may be missing.
JPMorgan, Barclays, Goldman Sachs Group Inc. and RBS Securities Inc. were among those who didn’t change their forecasts.
“ADP, over time, hasn’t proven to be that great of an indicator of non-farm payrolls,” said Barclays’ Gapen. End-of- year seasonal adjustments always made December a difficult month to forecast. “We’re sympathetic to the difficulties in doing this type of analysis at year end.”
The government’s survey of households may be closer to ADP’s liking. Prakken pointed out that it showed total job growth of precisely 297,000 last month. The payrolls data are based on a separate survey of businesses.
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