Economists Cautious About Today’s Strong ADP Jobs Report

Jan 5, 2012
This article is part of a series called News & Trends.

Payroll processor ADP says the U.S. added 325,000 private sector jobs in December, a new jobs number that beat even the most optimistic of estimates.

The job count in ADP’s National Employment Report released this morning was almost twice the estimate of some surveys, and was the highest reported by ADP in a year. A Bloomberg survey of economists put the average estimate at 178,000 jobs; other surveys were in the same range.

Combined with today’s report that initial claims for unemployment dropped by 15,000 last week, the news helped ease a stock market decline prompted by renewed concerns about European debt problems. The reports also prompted some economists to wonder if tomorrow’s official employment report from the U.S. Labor Department will hold a similar surprise.

“The ADP data confirms that the underlying U.S. economy is outperforming the other G10 countries. This should hike up expectations for the non-farm payrolls report on Friday,” said Boris Schlossberg, director of FX Research, GFT.

However, most economists cautioned against reading too much into the ADP report. The Wall Street Journal, in a blog entry headlined “Strong ADP Jobs Gain Needs Grain of Salt,” said the ADP numbers are skewed by end-of-year payroll purges that may not be completely factored in.

Reuters said Joel Prakken, of Macroeconomic Advisers, which helps produce the survey, told reporters that job readings tend to be inflated at year-end as employers keep workers on payrolls for accounting reasons, and the reading could be revised lower.

That happened in December 2010. ADP and Macroeconomic Advisers initially reported the economy created 297,000 jobs. That estimate was subsequently lowered by 51,000. When the official government report was released a few days after ADP’s, it showed only 113,000 private sector jobs were created.

Economists now estimate that when the official December report is out tomorrow morning, it will show the economy added about 150,000 total non-farm jobs. (The U.S. report counts both government and private sector jobs, while the ADP report includes only the latter.) However, the unemployment rate is anticipated to have edged up to 8.7 percent from November’s 8.6 percent, due to the increased number of people looking for work during December.

Even so, economists generally are hopeful about the economy.

“We certainly are seeing resilience in the job market,” Sean Incremona, a senior economist at 4cast Inc. in New York, told Bloomberg. “We’ve seen some improvement versus earlier in 2011 and it’s encouraging.”

The ADP report said most of the job growth came in the service sector, which added 273,000 positions in December. All but 35,000 positions were created by companies with fewer than 500 employees.

Manufacturing added 22,000 positions. The larger, goods-producing sector added 52,000 positions.

This article is part of a series called News & Trends.