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Investor Takeaways from the July ADP Non-Farm Payrolls

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ADP employment change

ADP (Automatic Data Processing) published the ADP non-farm payrolls for July on August 3, 2016. This report is important for investors because its acts as a prelude to the Bureau of Labor Statistics’ Final NFP (non-farm payroll) numbers scheduled for August 5, 2016. The ADP report usually gets the direction of change in employment right at a high accuracy, but the correlations in terms of magnitude are much less than desired. Read Can Investors Keep Forecasting the Final Non-Farm Payroll Correctly? for a more detailed analysis of the correlations.

This month we saw an increase of 179,000 jobs in the private sector, according to the ADP report. In this series, we’ll look at the sectors that outperformed. For a detailed analysis of last month’s final NFP numbers, read Unemployment Rate Rose to 4.9%, Offset the Decline in May.

ADP non-farm payroll sector analysis

Looking at the NFP change based on company size, the medium-scale business saw the maximum increase in jobs. There was an increase of 68,000 jobs in medium business, while the small and large business saw a rise of 61,000 and 50,000, according to the ADP report.

The goods-producing sector saw a fall of 6,000 jobs, while the employment increase in the service-providing sector rose by 185,000.

Looking at the snapshot on the basis of industry, the construction sector dropped 6,000 jobs. Maximum gains were recorded in professional and business services—a rise of 59,000 jobs.

Impact on the market

The construction and manufacturing sector performed the worst, according to the ADP report. We’ll look at how markets reacted to these sectors. The SPDR S&P Homebuilders ETF (XHB) and the SPDR S&P Metals & Mining (XME) fared on a relatively weaker note compared to the other SPDRs (QQQ). They rose by 0.36% and 0.84%, respectively. In terms of stocks, KB Home (KBH), Lennar (LEN), and Toll Brothers (TOL) rose by 1.0%, 0.46%, and 0.92%, respectively.

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