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Services ISM Beats Expectations While Drop In Employment Index Confirms ADP Beat Was An Aberration

Tyler Durden's picture


Following the too good to be true ADP number, the December Services ISM number came at 57.1 on a 55.7 consensus and an improvement from November's 55- a multi-year high. Yet the usual casual glance behind the scenes confirms once again that disparate economic data series are in complete contradiction with each other: the employment index declined from 52.7 to 50.5, which makes absolutely no sense in light of the alleged surge on ADP service-related jobs. Even Goldman has nothing good to say: "The decline in the employment index, however, suggests that the
strong ADP employment number has considerable statistical distortion
and should therefore be interpreted with care.
" But such is life when one runs a ministry of truth with far too many controllable variables. Furthermore, the economic growth through inventory accumulation is continuing, as inventories increased from 51.5 to 52.5. And most importantly for EPS numbers, kiss those margins good bye: prices paid increased from 63.2 to 70.0. 

Below are the survey respondents comments on the economy:

  • "Overall business climate remains reasonably positive." (Management of Companies & Support Services)
  • "Pricing pressures are starting to heat up." (Construction)
  • "Outlook for 2011 is positive with an increase in spending." (Finance & Insurance)
  • "Looks like more budget reductions are coming in the next year." (Educational Services)
  • "Cotton prices are moving upward, but prices are being kept in line as the overall Asian market cools somewhat."(Retail Trade)
  • "Business picking up for holiday — above expectations." (Transportation & Warehousing)

Summary table:

And most amusingly, Goldman, which was stunned by today's ADP number and said that confirmation of the tremendous beat would be found in the ISM data, has absolutely nothing to be happy about considering the drop in the employment number:

BOTTOM LINE: The ISM nonmanufacturing survey rises ahead of expectations in December, as the indexes for new orders and business activity rise sharply. The decline in the employment index, however, suggests that the strong ADP employment number has considerable statistical distortion and should therefore be interpreted with care.

ISM nonmfg index +3 (3, +1) with +1 judgmental adjustment for strong composition.

ISM index up 2.1 points to 57.1 in Dec vs. GS 56, median forecast 55.7.

1. The ISM nonmfg headline index rises ahead of expectations, up from 55.0 to 57.1 in December. This increase is due to sharp improvements in the index for new orders (up 5.3 points to 63.0) and business activity (up 6.5 points to 63.5). On the basis of this composition, we have judgmentally adjusted the US-MAP reading, which was on the borderline already. The supplier deliveries index eases by 1 point to 51.5.

2. The employment index falls in December (by 2.2 points to 50.5). This decline contrasts sharply with today's upside surprise in the ADP employment report for December-which was mainly driven by gains in employment at service-providing firms-and thus suggests that the ADP surprise should be discounted significantly in considering whether any revision should be made to expectations for Friday's employment report. We continue to evaluate this issue in light of all the new information; pending that review our estimate of a 100k increase in total nonfarm payrolls remains unchanged.

Which is why as we suggested some time ago, the US department of data fudging should import a lot more Chinese individuals who are far better at manipulating bullshit data than the amateurs we have right now.


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Wed, 01/05/2011 - 11:44 | 849279 Salinger
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Rosie turns Bulllish (on Canada) LOL


The usually bearish David Rosenberg is unusually bullish — this time about Canada.

In his Tuesday note to clients, the chief economist at Gluskin Sheff + Associates said the Canadian dollar’s recent surge beyond parity with its U.S. peer, and “unprecedented” discounts on Canadian government debt compared to U.S. Treasuries, is a clear sign investors believe Canada is a safer place to park their cash.

Even though there are legitimate concerns about the overstretched balance sheets Canadian households are carrying,  he said consumer debt levels are “completely serviceable” at the present time.

Wed, 01/05/2011 - 11:46 | 849281 goldmiddelfinger
goldmiddelfinger's picture

will this make gold go up?

Wed, 01/05/2011 - 12:22 | 849395 HarryWanqer
HarryWanqer's picture

I wouldn't want to be long gold at this point.  Classic top.

Wed, 01/05/2011 - 12:26 | 849412 SheepDog-One
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You wouldnt want to be long gold? Oh, well when did you sell your gold holdings youre always talking about? In the rear view mirror top Im sure....oh well Harry tell us when youve again went long on gold again, Im sure that will be after the next rip upwards.

Wed, 01/05/2011 - 12:37 | 849449 tmosley
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Wed, 01/05/2011 - 12:41 | 849460 ColonelCooper
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Goddammit!  You can't even tell all these asshats apart anymore.  Funny though.

Wed, 01/05/2011 - 11:48 | 849283 vote_libertaria...
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The guy from ADP was releasing the number on CNBC.  As soon as he gave the number he said it looked odd and gave 4 or 5 reasons why it may not be as high as it seems.


Some of his reasons included a 5 week period vs the usual 4 (with a late Black Friday), acctg changes(?), their EOY catch-up adjustments, etc..



Wed, 01/05/2011 - 11:54 | 849303 Azannoth
Azannoth's picture

So they put All the adjustments for the whole year in 1 month report and got +200k jobs, cool can we get back to PM hoarding now ?

Wed, 01/05/2011 - 12:13 | 849375 Dick Darlington
Dick Darlington's picture

lol! +1

Wed, 01/05/2011 - 11:55 | 849287 scratch_and_sniff
scratch_and_sniff's picture

Friday beckons, i say hold on to your hats, its going to be a hairy one. He is quick to point to the distortion of the ADP, but couldn't it be the ISM thats distorted?

Wed, 01/05/2011 - 12:38 | 849456 tmosley
tmosley's picture

Might unicorns really exist?

Wed, 01/05/2011 - 12:42 | 849464 scratch_and_sniff
scratch_and_sniff's picture

...ask me on friday.

Wed, 01/05/2011 - 18:37 | 850697 TheProphet
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Can't you just remember the question and answer it then?

Wed, 01/05/2011 - 11:50 | 849290 Oracle of Kypseli
Oracle of Kypseli's picture

They are still winning.

But for how long? Is everyone in the business and government blind?

Are they afraid that one negative utterance will collapse the economy? 

Fascism is on the way. 

Wed, 01/05/2011 - 12:09 | 849360 Oh regional Indian
Oh regional Indian's picture

Very pertinent observation OoK.

There is no bad news. it's only good, gooder and goodest from here on out.

Fascism is already here, it's just wearing a velvet glove right now.

As the saying goes, when the gloves come off....


Wed, 01/05/2011 - 13:34 | 849651 Oracle of Kypseli
Oracle of Kypseli's picture

Or you can say the latex gloves come on.

Wed, 01/05/2011 - 14:13 | 849818 ElvisDog
ElvisDog's picture

Just curious, what is your definition of "Fascism"? That term is thrown about willy nilly, but probably 1% of people know what Fascism really means.

Wed, 01/05/2011 - 15:41 | 850075 Oracle of Kypseli
Oracle of Kypseli's picture

A political movement, or regime (as that of the Fascisti) that exalts nation and often race above the individual and that stands for a centralized autocratic government headed by a dictatorial leader, severe economic and social regimentation, control and forcible suppression of opposition ©1997, 1996 Zane Publishing, Inc. All rights reserved.

By substitution:

financial regime(as that of the Fascisti) that exalts profits for the elite and the oligarchs above the individual(s) and that stands for a centralized autocratic financial planning government headed by a paid for neutered puppet leader, severe economic and social regimentation, control and forcible suppression of free market and true capitalism 

Wed, 01/05/2011 - 17:07 | 850323 andybev01
andybev01's picture


Wed, 01/05/2011 - 19:15 | 850843 ElvisDog
ElvisDog's picture

You missed the key connection - fascism, as it was originally envisioned by Mussolini is a union of the corporate and government worlds. The government runs the corporations and the corporations run the government. It features a strong central leader and discourages individuality.

Wed, 01/05/2011 - 11:51 | 849295 Rodent Freikorps
Rodent Freikorps's picture

That's bad when the rich are hiring part time gardeners and maids as temps.

Wed, 01/05/2011 - 11:51 | 849296 Kina
Kina's picture

"The decline in the employment index, however, suggests that the strong ADP employment number has considerable statistical distortion and should therefore be interpreted with care." 


Code for 'its complete bullshit manufactured to order' to suite today's kubuki dance.

Wed, 01/05/2011 - 11:55 | 849302 Boilermaker
Boilermaker's picture

Wow...why so harsh?  Everyone makes mistakes...

Wed, 01/05/2011 - 11:53 | 849300 Boilermaker
Boilermaker's picture

Look at the effort to push the markets higher.  Every downward movement is pushed back to parity over and over.

I don't know how anybody with any education can't see that it's completely artificial.  I really don't.

Wed, 01/05/2011 - 12:04 | 849336 Cognitive Dissonance
Cognitive Dissonance's picture

The first thing to be blinded when in denial or QE X.x fueled euphoria is the critical eye. To those who want to believe, this is just more fuel for the denial steam engine.  For those who do believe, this is just confirmation. And for those who are on the fence, this is making them nervous.

It's all about belief and not about facts and fundamentals. But that old saying about living by the sword and dying by the sword eventually comes true. Can kicking is all this is.

Todd Harrison was saying back in 2008 that they sold the car crash and bought the cancer. Cancer can take a long time to kill. The powers-that-be are hoping they run out the asset transfer clock before the patient dies.

Wed, 01/05/2011 - 12:59 | 849529 Boilermaker
Boilermaker's picture

I get that; I really do.  But, at some point, it because truly preposterous.  Today's ADP number was only missing a breaking news bulletin with Baghdad Bob (with obligatory beret and gold braided shoulder cords) pronouncing a 'glorious' victory.

Honestly, this is getting absurd and reaching Soviet era bullshit.  I mean, I hope the wheat harvest is more bountiful this year than ever before.

How any objective person, even with bias, can accept this without eye rolling is beyond my comprehension.  Moreover, ADP should have never released it knowing that it's utter bullshit.  But, then again, a company that gets paid on how many paychecks they process (among other services, I'm sure) certainly has incentive to push the pollyanna 'rah-rah' bullshit also.

Bottom Line:  I still don't 'get it' completely.

Wed, 01/05/2011 - 14:15 | 849828 Cognitive Dissonance
Cognitive Dissonance's picture

Bottom Line:  I still don't 'get it' completely.

I understand because I feel this way myself from time to time. But then (thankfully) I remember that my cognitive dissonance is hurting because I'm trying to make sense of insanity.

Which if I try too long simply means I'm becoming insane myself. :>)

Wed, 01/05/2011 - 11:54 | 849304 gorillaonyourback
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does any independent institution fact check adp, frb, or other economic indicators.  It would be nice to see that info.  Its kind of currious why the stock market isnt jumping all over the adp numbers or the car sales number.  any comments please

Wed, 01/05/2011 - 11:55 | 849306 HarryWanger
HarryWanger's picture

I can't believe what I'm reading here! ADP number was a blowout, I don't care what you say. Are you blind?

ISM was strong as was yesterday's numbers. We've had nothing but great economic news. There's no way around that. 

Celebrate a strengthening economy rather than trying to find slivers of bad in fantastic news.

Wed, 01/05/2011 - 11:59 | 849316 goldmiddelfinger
goldmiddelfinger's picture

"Are you blind?"

Do we look like Moe Green?

The employment figures were UNCONFIRMED by ISM.


Wed, 01/05/2011 - 12:01 | 849323 EscapeKey
EscapeKey's picture

Yes, Prices Paid going from 63.2 to 70.0 is strongly bullish.

So which side are you on - margin compression, which will lead to bankruptcies and hence job losses, or inflation in consumer prices?

Also, services hiring doesn't exactly agree with the ADP report. Care to comment?

Wed, 01/05/2011 - 12:07 | 849357 Mrmojorisin515
Mrmojorisin515's picture

I will celebrate when we don't have 0% interest rates and mark to market is reinstated harry.  Why should you believe any numbers until those two things are allowed to return?  Harry you lack any principles, the economy is your god and i'm sure you'll find a warm place in hell

Wed, 01/05/2011 - 12:20 | 849374 SheepDog-One
SheepDog-One's picture

HarryWanker and his imaginary consumer product company...LULZ. Hey Harry, as Chief Dan said...'If its so good, then YOU drink it'!
Go buy stocks Harry no one here is stoppin ya!

Wed, 01/05/2011 - 12:29 | 849420 TruthInSunshine
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'Hairy Wang's Urinal Cake Company'

Wed, 01/05/2011 - 14:17 | 849833 Cognitive Dissonance
Cognitive Dissonance's picture

Now that had me laughing out loud and for a long time. :>)

Wed, 01/05/2011 - 12:20 | 849390 Ferg .
Ferg .'s picture

It's not about trying to find " slivers of bad in fantastic news. " It's about putting data in proper perspective . In and of itself the ADP figure was indeed a blowout . However , that spike should have been confirmed by the ISM Services Employment Index . It wasn't , and in fact there was a significant disparity . That casts doubt on the credibility of the ADP number .

Wed, 01/05/2011 - 12:39 | 849459 tmosley
tmosley's picture

Unicorns and lollypops are here again!

Best sell that gold Harry!

Wed, 01/05/2011 - 14:09 | 849805 huggy_in_london
huggy_in_london's picture

Why are people junking this?  Traders trade, the facts are changing... don't be so stubborn you people as to be blinded by your own views!!  And Wanger is right re gold ... classic double top.  And broken the big uptrend line.  Just be cautious you longs....

Wed, 01/05/2011 - 11:58 | 849308 goldmiddelfinger
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2. The employment index falls in December (by 2.2 points to 50.5). This decline contrasts sharply with today's upside surprise in the ADP employment report for December


Somebooby's got some 'splain' to do

Wed, 01/05/2011 - 11:57 | 849310 erik
erik's picture

the USD just regained its 50 day MA.  that is a huge caution for all commodities, including gold and silver.  dr. copper is also suggesting a pullback is imminent, as it has led the stock market by 1-2 weeks before pullbacks.

if the USD consolidates here above 80 for the next couple of days, then look out above, and look out below for commodities and stocks.

Wed, 01/05/2011 - 12:00 | 849319 Ragnarok
Ragnarok's picture

Euro weakness is the driver, and I agree that there could be a larger pull back in metals.

Wed, 01/05/2011 - 12:09 | 849364 erik
erik's picture

Ragnarok, i don't know that it is Euro weakness per se, as the Swiss Franc and Japanese Yen are getting hammered too versus the USD.

I think what we are going to witness is the money in commodities based on fear of USD/Fed policy will come flooding out now that a jobs number came in very high. 

How much money was sitting in commodities as a safeguard against the USD and Fed policy?  Now that we get positive employment news, the rush for the exits will begin.  Case of too much bullishness on commodities, too much bearishness on USD.  it'll make for a strong correction over the next 1-2 months.

Wed, 01/05/2011 - 12:16 | 849387 goldmiddelfinger
goldmiddelfinger's picture

Think commods should get ripped as deflation is masked by Chinese panic over industrial metal supplies.

Wed, 01/05/2011 - 12:27 | 849414 erik
erik's picture

Is that a statement or question, goldmf?  Can you elaborate?

Also, you keep making reference to DeMark monthly setups.  Where are you getting that info?

Wed, 01/05/2011 - 12:16 | 849381 SheepDog-One
SheepDog-One's picture

Euro turd lack of flotation causing USD turd to float a bit higher for the moment.

Wed, 01/05/2011 - 12:24 | 849405 erik
erik's picture

I really don't think it is the Euro.  Spain bond spreads are tightening.  Of course, that is because the ECB has made it so and will probably continue to do so.  Other Euro bond spreads are either going sideways, or very mildly tightening.

This is the beginning of a potential USD short squeeze.  If the USD consolidates above 80 the next couple of days, then I expect buying will really ramp up over the next 1-2 months.

Stocks can potentially move higher near term on funds from US treasury sellers, thanks to the employment number beat, but even they will succumb when the USD takes off.

Wed, 01/05/2011 - 12:31 | 849429 SheepDog-One
SheepDog-One's picture

As long as its remembered the ONLY thing that matters now is the FED bankers 'assets' in trillions worth of stocks and bonds theyve been buying. Inflation or deflation is only in reference to inflation of their worthless MBS and UST purchases which theyll now fight to the death to defend. If Bernanke sees 'deflation' (that means the FEDs asset value is goin down) he'll do all he can to plunge the dollar...its all about devaluing the dollar. At some point this will lead to a world war, as history shows.

Wed, 01/05/2011 - 12:54 | 849508 erik
erik's picture

Sheep, I agree the long term implications of all of this are dire.  The Fed will implode eventually.  I am speaking more in the 1-2 month range. 

I think FCX is a magnificent short if the USD consolidates above 80 the next couple of days.  Both it and copper led the Jan'10 and Apr'10 corrections.

Wed, 01/05/2011 - 15:37 | 850070 Hugh_Jorgan
Hugh_Jorgan's picture


Wed, 01/05/2011 - 12:00 | 849314 gorillaonyourback
gorillaonyourback's picture

i hear you harry BUT commodity prices down, employment up, cars sales up,  STOCK DOWN. make any sense?


Wed, 01/05/2011 - 12:06 | 849347 HarryWanger
HarryWanger's picture

The "STOCK DOWN" part I don't get since stocks are not down. Everything else tells me we're looking pretty strong. No argument there.

Wed, 01/05/2011 - 12:22 | 849389 SheepDog-One
SheepDog-One's picture

HarryWanker dont you have to deal with margins and prices paid in your imaginary consumer product company?
'Everything looking pretty strong'....oh yea? Well take away the ZIRP, $9 billion daily POMO's, Q/E to infinity and beyond, move that interest rate from 0 to a historically measly 2% and then tell me what you got!

Wed, 01/05/2011 - 12:25 | 849413 Rogerwilco
Rogerwilco's picture


Construction spending is up! -- that was a headline a few days ago. It fits in with what I observed recently at our nearby strip mall, now empty for four years. A bunch of construction equipment arrived In the first week of December and workers began tearing up the parking lot. They installed a huge lighted sign with a big ornate stucco base and it was finished last week. The bays in the sign are all empty because none of the storefronts are leased, but some fool decided to build this sign structure anyway.

Was government "stimulus" money in the mix? My guess is yes. Did this project add anything sustainable to the local economy? No, it's just wasteful spending IMO. The bigger picture is the same. When the federal government runs 12% deficits and throws money around like candy, some kids are bound to find a cause for celebration.

Wed, 01/05/2011 - 17:17 | 850340 andybev01
andybev01's picture

Was the ornate base shaped like a pig and was it wearing lipstick?

Wed, 01/05/2011 - 12:33 | 849437 TruthInSunshine
TruthInSunshine's picture

Car sales are up a fairly measly amount, on the back of unprecedented government stimulus, direct and indirect, from depression-like levels in 2009, and still nearly 40% off their 2006 levels.

If financial news was honest, that would be much closer to an honest headline than the bullshit that they weave.

Wed, 01/05/2011 - 12:30 | 849424 Boilermaker
Boilermaker's picture

Wow, you know it's complete BULLSHIT when even CNBC mocks the numbers....


Wed, 01/05/2011 - 13:08 | 849567 Bastiat
Bastiat's picture

Looks like they are starting the new year with an all out perception management blitz.  This should be no surprise: the nascent grassroots campaign to bring JPMs silver position down is a serious threat undercutting the whole leveraged paper price fixing game.  Stand by, it is going to get wild!

Wed, 01/05/2011 - 14:06 | 849798 huggy_in_london
huggy_in_london's picture

I think its a little arrogant to say that the adp number doesn't matter.  It was a huge number, by anyones standard.  

I am not saying it means you buy fact, the opposite should be true... better economic numbers must see stocks go lower as the emergency level of liquidity and rates will end sooner rather than later if data comes strong.   But I wouldn't shit on this number just yet.  Its typical at turning points though for people to discount the reversal in the data. you gotta respect the market.....

Wed, 01/05/2011 - 14:15 | 849824 Boilermaker
Boilermaker's picture

It isn't a huge number if it's a bogus number, which it is.  That's the problem.  When you make something so aburd that it's dismissed immediately, then it's worthless to begin with.

I think this number has been fully shit on and for good reason.  What's more, aside from the daily government pump effort, the 'market' has shit on it also.

It's like saying the Colts are going to beat the Jets by 144 points.  It's just laughable even though it's theoretically possible.  They might as well have said that 12,000,000 jobs were created, it's just as ridiculous but has better comedic value.

Wed, 01/05/2011 - 14:54 | 849940 huggy_in_london
huggy_in_london's picture

Based on what?  I think you guys are letting your emotions take over ... always a dangerous thing when you are trading money!!  My point is that yeah you should have a view, but keep an open mind.   Well anyway, we will see on friday.  

Wed, 01/05/2011 - 16:56 | 850285 Boilermaker
Boilermaker's picture

See what on Friday?  The BLS numbers?  Why?


Wed, 01/05/2011 - 18:49 | 850747 TheProphet
TheProphet's picture

Yeah because after all, in October, the BLS didn't tinker with the birth-death calculation to conjure up 100,000 non-existent jobs. And in December, the BLS didn't tinker with the seasonal employment calculation to conjure up 130,000 non-existent jobs.

The BLS are absolutely the worst offenders. And you suggest we should await their pronouncement with bated breath?

Wed, 01/05/2011 - 14:55 | 849943 kelvin
kelvin's picture

I am not sure how ADP came up with the nice number.  But considering that 10,000 boomers are reaching 65 y/o each day we could have a situation here where many who reached 65 y/o last year decided to work till the end of Dec 2010.  I know 4 personally.

As a result, companies start hiring process in Dec 2010 to replace those who were leaving thier jobs at the end of the year.  This creates a huge increase in hiring number in Dec.  Together with the temp jobs for the holiday seasons, this could be the right mix to explain such massive number.   Possible?

Wed, 01/05/2011 - 18:56 | 850779 I Am The Unknow...
I Am The Unknown Comic's picture

The real story is that the ADP numbers were correct as exactly 197,000 elves and Santas were indeed hired and now give new meaning to the classic song:

"Here come santa clauses, here come santa clauses, right down welfare lane

Unemployment checks and food stamp plastic cards, all are on the dole again!

Free cell phones ringing, back to hard core drinking,

that's why they've got Medicaid!

Here comes santa clauses......"

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