ADP methodology change and NFP

Data of primary importance… Recession concerns continue to rise. In a period when the markets are intensely afraid of the usual effects of the recession, the data on the possible recession or the vitality of the economy are at the forefront, and employment-related indicators come first.

ADP – NFP relationship… The June ADP employment report will not be released. The publication of the report was paused while the methodology was reorganized. The reports created with the new methodology will be published as of 31 August.

An analysis of the relationship between the ADP and NFP surveys showed that over the past few years, less than a quarter of NFP’s private sector data has fallen into the plus or minus 10% range of ADP data.

Last 3 years regression analysis of ADP and NFP private sector data… Source: Bloomberg

Methodology… The NFP report is based on household surveys as well as the current employment statistics program. The report provides data on all employees, average hourly earnings, average weekly earnings, and average weekly overtime hours, along with industry and geographic details.

The ADP report is based on data from ADP’s payroll files. Data processing involves many steps, including removing outliers, aggregating records by industry and company size, generating matching pairs, seasonal adjustment, and adjusting the official employment data to suit the industry and size distribution.

Conclusion? The correlation between ADP and NFP readings does not appear to be perfect. The ADP said it would halt publication of the private sector employment report while restating the report to make “a more robust, high-frequency view of the labor market and economic growth trajectory”. The report was criticized for its weak correlation with the employment report, released two days after the ADP survey, and therefore not a good forecast indicator.

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