Thursday, November 1, 2012

ADP employment report only modestly positive

ADP has revised its methodology, and this appears to have improved the ability of its estimate of private sector jobs growth to predict the BLS establishment survey of jobs growth. This suggests that tomorrow's private sector jobs number could be modestly higher than expected (158K vs. 124K).

The first chart above is from last month (September data), before ADP changed its reporting and forecasting methodology. The second chart uses the new and revised data through October. To my eye, the new ADP series more closely tracks the BLS data, especially in the past year or so. If this holds up, then it means that tomorrow's jobs report should be somewhat better than expected. Even so, jobs growth of 160K is only enough to absorb new entrants to the labor market, and far short of what it would take to bring about a meaningful reduction in the unemployment rate. So I wouldn't expect another decline in the unemployment rate, and I note that expectations call for it to rise from last month's 7.8% to 7.9%.

The outlook for economic growth remains uninspiring, but the good news is that there is no sign of deterioration. But since the market remains braced for bad news, this dull news ends up being good news.

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