Art Cashin Explains Why The ADP Conundrum May Soon Be Resolved

Tyler Durden's picture

Readers of Zero Hedge know that we put
precisely zero weight and/or credibility in yesterday's ADP number:
month after month it has proven to have no predictive ability when it
comes to forecasting the Nonfarm
Payroll Number. On the other hand, we have also been very skeptical of
the BLS data, if for no other reason, than due to the traditional
Birth/Death adjustment fudge factor. Yet Wall Street needs economic data
to which it will respond in a kneejerk, or otherwise, format. Therefore both numbers are important from a trading, if not investing, perspective. This morning, Art Cashin
picks up on these two key points and resolves the ADP conundrum, or
rather, tells his readers to wait until tomorrow's data to discover if
ADP may have finally redeemed itself from the compost heap of economic
indicators.

From Art Cashin's daily note:

Alea Jacta Est! – As you probably recall from sixth grade, “alea jacta est” is Latin for the phrase – “The die is cast”. You may further recall it was the phrase that Julius Caesar uttered upon bringing the Roman legions that were under his command across the Rubicon River. Tradition had held that generals could lead their troops no closer to Rome than the banks of the Rubicon. To cross was to be in rebellion. Caesar’s “the die is cast” was his acknowledgement that there was now no turning back.

We took this mental stroll to the banks of the Rubicon because of Wednesday’s ADP payroll estimates. That connection may be a touch more difficult to translate than Caesar’s Latin.

For years there have been two camps on the monthly release by the BLS of the “nonfarm payroll” numbers.

One camp says the numbers are volatile and hard to predict, but do have their basis in the real economy. The other camp believes the payroll data is either useless, or worse, misleading. They think the numbers are distorted badly by the inclusion of data based on the BLS “Birth/Death” model. The Birth/Death is not of humans but rather of companies. When companies are born (start up), it is assumed they hire workers and when they die (close down), they lay off workers.

Each month the BLS estimates (guesses) how many businesses were born or died. It then estimates (guesses) how many workers these estimated companies were estimated to hire or fire. They then put their estimate into the monthly number.

Most folks in the second camp believe it was the inclusion of a whopping B/D estimate that allowed the BLS to announce, much to the surprise of most economists an unexpectedly strong 244,000 new jobs in April.

So, getting back to our allusion to Caesar and the die being cast, Friday’s numbers may give clear victory to one camp or the other. Wednesday morning’s ADP estimate was for payrolls to rise only 38,000 not the 190,000 expected. Most folks in “Camp One” immediately cut their estimates by 50,000 to 100,000. That left the consensus somewhere around 75,000 to 110,000 for Friday. “Camp Two” says the BLS usually throws in about 200,000 B/D jobs in May, so Camp Two is still looking for a number in the 175,000 or 200,00 range. Friday morning could be very, very interesting.

...and just because it is always so informative, here is the History lesson:

An Encore Presentation

On this day in the year 455 A.D., the Eternal City of Rome found itself under attack for the third time in less than 50 years. The once impregnable seat of the Roman Empire had been overrun by the Visigoths in 410. Recouping, they fought off and ultimately bought off the Huns just twenty years later. Now outside the gates stood the Vandals, a Germanic tribe that had originally inhabited the Baltic area of present day Lithuania, Estonia and Latvia. (Their primary contributions to history include triple bypass surgery {patient standing} and conventions.)

So, on this day, these fun loving conventioneers, the said Vandals, swarmed into Rome to see the sights the Goths had told them about. Apparently, they had arrived during the "off season" thus denying them the culture tour. In frustration, they began to knock the heads off the statues (dipso facto - vandalism). When they started to run out of statues, they began to knock the heads off people.

When they started to run out of people with heads, they began to think about the alternative - the government. What about the Emperor? Maybe he had some gold and goodies that the Goths and Huns had overlooked. And anyway, the Vandals figured, they hadn't lopped off an Emperor's head in nearly six weeks.

Now the Emperor, one Petronius Maximus, was not too keen on entertaining the Vandals. First of all he had only got the Emperor job a year ago (so he wasn't sure if his pension was vested yet). Also, his protectors, the Praetorian Guard, when they heard the word "Vandal", looked like a kid who was told there was liver for supper.

So, when Maximus saw the Vandals headed down his block, he adopted a tried and true strategy of government leaders - he put on women's clothing and tried to sneak out the back door of the palace like he was headed for the "Tony" Awards.

The people of Rome mistook this clever and courageous strategy for either mediocre transvestitism or simple cowardice and they stabbed Maximus in the bodice. Not finding any other girls or even guys in girl's clothing the Vandals decided to go sack and burn somewhere else.

The bulls could have used a good disguise yesterday as the bears made the Vandals look like girl scouts. By the closing bell there was a lot of rubble at the feet of those who had been looking for the foundation of a new leg up.