Reconciling the ADP and BLS reports
Few economic releases elicit as much reaction from both the stock (IVV) and bond (BND) markets as the employment reports issued by Automatic Data Processing (ADP) and the Bureau of Labor Statistics (the BLS). Both these reports have become even more important following the financial crisis and Great Recession of 2007–2008. Since 2008, the U.S. Federal Reserve has followed an expansionary monetary policy at never-before-seen levels in an effort to revive the economy and generate jobs. So ensuring full employment in the economy has become part of the Fed’s twin goals. The Fed’s other goal is ensuring price stability or long-term inflation at ~2% level.
Although the unemployment rate (which had peaked at 10% in October 2009) has fallen to 6.3% in April 2014, it’s still far short of the Fed’s full employment target of 5.2% to 5.6%. Also, the workforce participation rate shows no signs of inching up, which will make labor market assessments for policymakers more difficult. Policymakers will need to decide whether some portion of the workforce has permanently exited the labor market and may never come back. So policymakers and economists closely watch these reports in order to assess whether the job market is indeed improving. More jobs imply higher consumption in the economy, and as consumption makes up over two-thirds of GDP, labor market reports like those issued by the BLS and ADP are critical for assessing economic revival.
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Both the ADP-NER and the BLS Employment Situation reports issue monthly non-farm payrolls data for the U.S. However, there are several significant differences between the two.
- The ADP (ADP) estimate includes only private non-farm payrolls, while the BLS estimate includes both private and government non-farm payrolls. The private payrolls estimate was 220,000 in the ADP-NER, while the BLS estimated the number at 273,000 in April.
- The ADP releases just one estimate for non-farm payrolls addition, while the BLS releases an initial figure that’s revised twice to include results from companies that sent their responses late. The first BLS estimate includes results from ~70% of the survey size, while the second and third revisions include an additional 20% and 1% to 2% of survey responses, respectively.
- The ADP-NER releases two days prior to the BLS non-farm payrolls release, which gives markets a heads-up on the BLS number.
- Although the ADP data base and survey methodology are different from the sample used to compute the non-farm payrolls report issued by the Bureau of Labor Statistics (the BLS), ADP has estimated the data correlation between the private payroll additions reported in the ADP-NER and the final BLS Employment Situation report at ~0.96.
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