Why should investors follow the ADP jobs report?

Part 2
Why should investors follow the ADP jobs report? (Part 2 of 8)

Recommendation: ETF investors should follow key jobs reports

Jobs reports

Jobs reports tell us how many jobs were added or lost since the previous month and how many new jobs are needed each month to keep the economy growing.

US Total Payroll Employees (nonfarm)Enlarge Graph

The performances of popular exchange-traded funds (or ETFs) like the SPDR S&P 500 ETF (SPY), the iShares Core S&P 500 ETF (IVV), and the iShares S&P 100 ETF (OEF)—which track large-cap equities of companies like Apple Inc. (AAPL) and Exxon Mobil Corp. (XOM)—also serve as a good indicator of the course the U.S. economy is taking.

There are currently three U.S. jobs reports that are followed widely:

  1. The Bureau of Labor Statistics’ Employment Situation Summary: The monthly jobs situation report produced by the Bureau of Labor Statistics of the U.S. Department of Labor
  2. The ADP National Employment report: The monthly employment report produced by Automatic Data Processing (or ADP) in collaboration with Moody’s Analytics
  3. The Jobless Claims report: A weekly jobless claims report produced by the Employment and Training Administration of the U.S. Department of Labor

The BLS Jobs Report

The Bureau of Labor Statistics (or BLS) reports on U.S. jobs each month through its Employment Situation Summary released on the first Friday of each month, popularly known as “employment Friday.” This is the most important jobs report, because it’s the most comprehensive and credible. It surveys 160,000 non-farm businesses and agencies on the number of jobs added—as well as wages paid and hours worked. This jobs report shows which industries are adding jobs, whether American workers are working longer hours, and how fast salaries are increasing.

The ADP Jobs Report

The ADP National Employment Report is released on the first Wednesday of each month. It’s produced by the ADP Research Institute and Moody’s Analytics. It uses business payroll data to report on the number of jobs added in the private sector. It excludes farming (as does the BLS report) and, more importantly, government jobs (included in the BLS report). For that reason, it’s incomplete. However, this report is still important, as it’s released the Wednesday before the BLS report is released and it gives some analysts an earlier view of what might happen on employment Friday.

However, ADP is quick to say it’s not intended to be predictive. Like the BLS report, it’s revised as more data comes in later in the month. These revised numbers are 96% correlated with the revised BLS jobs report.

The Weekly Jobless Claims Report

The Department of Labor also releases a weekly jobless claims report. This measures the claims for initial unemployment benefits reported by each state every week. It also reports how many of the unemployed are still receiving benefits. This report hints at whether there are more or fewer unemployed people than the week before. The main value of this report is that it’s weekly, so it gives some idea of trends in between the monthly jobs reports. However, it doesn’t accurately predict the monthly report. Plus, it’s very volatile and so can be very misleading at times.

Find out more about the ADP jobs report in the next part of this series.

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