Two Takes On The ADP Number

Tyler Durden's picture

The following two takes on this morning's ADP number are from two opposites: Goldman, with its transition to a permabull, and Knight Capital, with its far more balanced outlook on the economy.

From Knight's Brian Yelvington:

ADP, the best (and really only) predictor of Friday’s monthly jobs data, printed at a very high 297K gain for December versus expectations of a 100K gain.  We have noted before that “best” here is a pretty low bar and the ADP report should be considered in its own right, and not just a forward look at the official numbers.  ADP overestimated November’s jobs data (by 43K), but underestimated the prior 6 months (average difference of 55K).
That being said, the 297K print is hard to argue with.  270K of the jobs were in the services sector, so this raises expectations for the ISM Non-Manufacturing number due out at 10AM.  We will closely watch this number for confirmation of the ADP data, but there is historically not a huge basis to argue with the number.  Even adjusting for holidays and noting the service bias, it is not out of line.  Service jobs accounted for about 97% of ADP December job gains and 84% of all ADP prints over the past five years.  A confirming ISM number at 10AM will significantly raise expectations and estimates for Friday. 

And from Goldman:

1. The monthly ADP employment report surprised sharply to the upside in December, posting a gain of 297,000 jobs versus consensus expectations of 100,000. This is the best ADP reading currently on record (the official data go back to January 2001, though the series has only been released publicly since 2006). Notably, the initial report for June 2006-since revised-was +368k, which substantially overstated the comparable BLS first print of +90k.

2. The bulk of the December 2010 surprise came from small- and medium-sized service sector firms (+120k and +123k respectively, up from +48k and +30k in November). Goods sector employment growth was still soft, with manufacturing up 23,000 (vs +15k in November) and construction up 6,000 (vs. +10k in November). ADP's estimate of financial sector employment was down 6,000, versus a gain of 2,000 in November.

3. The ADP data have a special quirk that could have affected today's report. ADP records payrolls based on the number of names on the payroll-regardless of how many hours they work during the week. Not every firm immediately "cleans" payrolls when an employee quits or is laid off; in some cases, it can take until the end of the year for the payroll list to be officially updated. This creates a lot of volatility in the December report in particular. In theory, one would expect greater purging in payrolls in bad years (like 2008 and 2009) and less in relatively better years (2010 was hardly spectacular, but at least payrolls were up on the year). Of course, the official report attempts to adjust for this behavior, but if 2010 saw relatively less purging than the sample period, it's possible some of today's improvement could be the result of this data quirk rather than genuine acceleration. Given the potential for an overstatement, we have put a -1 judgmental adjustment on our US-MAP reading, which still records a significant upside surprise.

4. Luckily, we will have a useful cross-check of the ADP report later on this morning. If service-sector employment really is accelerating sharply, we'd expect to see the employment index of the ISM non-manufacturing survey (which was 52.7 last month) post a meaningful increase. This report will be released at 10am and will help us gauge how much weight to put on the very strong ADP report.

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Quinvarius's picture

Service jobs are pure money velocity with no production to back them.

More Critical Thinking Wanted's picture


The ISM number is just out, and it's a strong uptick - so I guess this validates the analysis of the "permabull" Goldman guy.


4xaddict's picture

as long as this continues I am happy (sorry everyone in PMs). Gives me a chance to get in on this party. I want SLV at US25

Panafrican Funktron Robot's picture

The thing about the ADP numbers is that they don't give the full picture, ie., you have to look at total employed AND earnings of those employed people.  Where would we find such information?

Tables from Employment and Earnings Historical

Readily available.  Simply multiply the number of employees by the average weekly earnings, and voila, you have a good barometer of economic effect of employment on the economy.  Yes, I do realize that the numbers are still monkey'ed with, but looking at it through this lens at least gives you a relative means of valuation over time.  Where it gets particularly interesting is when you then bump this up against overall population data.  It becomes easy to see why even a 297K print at a constant weekly average wage isn't even treading water.

unwashedmass's picture

yup. all those Christmas retail jobs....they really move an economy.

Internet Tough Guy's picture

Yesterday there were headlines that Family Dollar will hire 6000. These are the types of jobs we create now; part time and low wage. Not the sort that allow people to buy into the stock ponzi or the high-end housing market.

Hollow_Point's picture

Todays news is FDO missed their bottom line, just squeaked by their top line and estimates for the 2nd qtr were lower...

So much for growth.

Cone of Uncertainty's picture

Yep, heigher freight costs and gross margin compression despite a 6.9% comp is a real bitch.


Stock off 8%.

4xaddict's picture

interesting about the Christmas jobs, was in NYC for my first visit over the thanksgiving weekend and Black Friday saw more staff in many stores than customers........ that must mean everything is ok if businesses can afford surplus staff right?

DosZap's picture

Have you been in one of these type stores,its pathetic.

Middle(formerly)class folks working as slaves for a lousy $8.00.

Barely eating and keeping roof over their heads.

Everything is a $1.00, and all the shit is Chinese.

The rage I feel when I see this is almost sickening.

Sad drawn faces, from 20-65yrs old, doing jobs illegals would not do 2 yrs ago.

Yet, Wall St, and the bankstas still getting huge bonus checks,I may hurl.

This is in a city with a per capita income of around 100k, and less than 17% of the pop is 50yrs old.

When someone says, WELL at least they have a JOB!, its all I can do to not deck them.These are not jobs, this is slave labor.

Oh regional Indian's picture

Unwashed, heavy sarc and spot on.

here in India, everyone who looks at me with shining eyes and says how amazing India's Shining story is, I point out that the "surging" lower-middle class is mostly employed in:

1. Retail

2. Delivery

3. Call-Centers

4. Low-end construction (lots of it)

5... same vein. 

Some of them give me the old MaryJane argument, that these are gateway jobs.

Sure they are, gateway to Serfdom.


ZeroPower's picture

But, to be fair, theyre employed correct? Im assuming its better than 1) unemployment or 2) rural living on a farm?

The main shining story as you put it of Indian and China is the new jobs being created to help fund the middle class. Yes its lower classes taking the jobs, but so what. Someone has to... do you not subscribe to this idea?

LongSoupLine's picture

Looks like ADP got a massage with a "happy ending"

Gordon Freeman's picture

You sure you didn't mix up the attributions?

SayTabserb's picture

That's what I was thinking. No way Goldman would knock the report because someone forgot to "purge."

ZeroPower's picture

Theres no real way to see this too bearishly. Firms needed more employees (probs part time?) to work the winter/Christmas time shifts.

Thats it.

Dan The Man's picture


cheerleading at its best

Skeptical_10016's picture

my money is with the former comment (mr yelvington) vs. the latter (newly found uber-bull GS)........with that being said, bouncing around off the bottom is pretty volatile and we are by no means experiencing "blowout" growth.........when ~20% of the workforce is un(der) employed + ~ 250k jobs required just to keep pace with demographics.........well these numbers (ADP) merely keep the unemployment rate from increasing.......nonetheless, we cannot lose sight of the current disconnect b/w the markets (RISK ON) vs. the real econ.......nonetheless, I don't see how the fed can fuel this rally for a sustained period of time as the initial conditions for the market (high P/E) necessitate that any earnings growth will most likely be offset by the P/E effect.........

~ Bucky Badger

firstdivision's picture

ADP report is the most worthless indicator out there (minus all indicators in this free money environment).  It is about as good as the U Mich Consumer Confidence.


OT: Dollar gets stronger, and oil goes up?!? I wonder how much in losses the Fed took on their recent 10 and 30 purchases.

RobotTrader's picture

The market has spoken.

The recovery is here.

No more need to own gold as a safe haven.

Internet Tough Guy's picture

It must be hard to drive with your face pressed up against the glass. Life is confusing extrapolating every tick to infinity? LOL...

Hephasteus's picture

I know he can get it under 1380 but can he keep it under 1380.

I'm not argueing that. If i were argueing that I'd be wrong.

I know he can get it under 1380 but can he keep it under 1380.

I'm not arugeing that.

I know he can get it under 1380 but can he keep it under 1380.

Welcome to joe versus the volcano week.

Ah the problems with illusory paper smash downs.

plocequ1's picture

Yes, This is what the Market sees. So let it be written. So let it be done. Rally on, So sayeth Ramses II

CU1981's picture

I'm hoping for $1250 ...


We can all dream can't we ? Or is that forbidden in central planning ?

4xaddict's picture

that level makes TA sense to me too however, this is a strange market if it can be called that anymore.

4xaddict's picture

that level makes TA sense to me too however, this is a strange market if it can be called that anymore.

docj's picture

The recovery is here.

Swell.  So does that mean Uncle Sugar will stop spending 12% of GDP in deficit?  And that Benron can call-off the QE-dogs?

Or is "recovery" just another word for "Ponzi" in your lexicon?

Kina's picture

Market? There is no fucking market, you would have to be fairly thick to think there is a market and doubly thick to believe there is a recovery afoot. Honestly, sometimes a lot of trash comes from you.

Hulk's picture

"The recovery is here"

That would explain the $150 Billion monthly deficit...    Got Gold?





Grand Supercycle's picture

USD strength returns yet again...

As noted many times, it keeps occurring because USD larger time frames continue to give bullish warnings. And so I remain US Dollar bullish and Euro etc. bearish.

e_u_r_o's picture

retarded euro has to start falling aswell obviously when gold falls thus making gold rise instead in euros. GODDAMNIT

Hephasteus's picture

What are you talking about. You are simply seeing a "movement" of real physical gold and  bullshit lying paper gold between the central banks. Gold determines the value of every currency relative to every other currency. To weaken a currency you simply "move" gold from one currency to all the other currencys. To strengthen a currency you move gold from the other currencies into yours. The problem is these are all in allocated accounts and they are complete bullshit. Because the same cheating lying theiving bastards that ran the london gold pool run this one.

Price of gold in dollars 1366

Price of gold in euros 1038

ratio 1366/1038= 1.316

eur/usd = 1.324.

They usually match much closer. This means there will be a spike in price of gold in euro's coming at pm fix. Or gold is heading to 1290ish territory in dollars. There is a significant european US event occuring. Perhaps it's something to do with their budgets for next year.

Salinger's picture

I can't wait to see how Rosie will spin this - I wonder when his performance review is scheduled? Hopefully for him it was before December.

thepigman's picture

Okay, I'm thrilled the US is moving

heavily to part time service jobs.

Cone of Uncertainty's picture

Exactly, all those Mom and Pops are now hiring another cashier, while reducing the hours for the other workers, for a net gain of ZERO!

thepigman's picture

Let's all celebrate the permanently lower

standard of living. YAY!!!!

sethstorm's picture

That's what happens when you confer divine right onto businesses.

Less jobs, more lording.

onlymyopinion's picture

todays report seems to make sense....didn't we just have one of the best holiday shopping seasons?  contrary to "popular" belief, QE2 is working-----creating jobs and lifting equities.  Ben Bernanke isn't as dumb as many appear to think he is.  I will continue to ride the trend (up for 20 months now) until it changes.  I've seen too many try to go against Bernanke only to see their accounts blow up.  It's still a bull and will be a bull until it isn't.


bonddude's picture

You want that burger medium rare mac?

DosZap's picture


I predicted this shit prior to the holidays.

On this site.Americans are stupid children for the most part.

They pulled in their horns, paid off debt, and lived modestly(for Americans) for 2yrs.

ONCE the CC's and the family finances of those employed starting looking bearable, it was TIME to treat ourselves.

Meaning the ignorant mofos, went and spent themselves back into a hole.


Americans cannot STAY on any type of budget for over 24mos without losing their minds.They WILL spend..............guaranteed.

Apocalicious's picture

Which is why a deflationary spiral has a 0% probability in America, the land of materialism...

LawsofPhysics's picture

QE will work...  until it doesn't.  It is still a finite planet with finite resources.  Cheap energy and cheap labor drive economies, not cheap dollars.

nopat's picture

I'd be careful shitting all over a spike in the jobs number from the services sector.  Let me be clear, I don't doubt there's a lot of part-time retail and headcount bleed-out baked in.  I also don't doubt there's probably some double-counting, as people take part-time holiday jobs in addition to their full-time employment, or as people switched employers (which I have seen quite a bit).  We're also seeing quite a bit of private-sector activity with developing/implementing major deployments, which will heavily weigh in on the services side of the jobs report, especially as consulting firms are increasingly handling most of the heavy lifting.  This coincides (imo confirmed) with the steel numbers we've been seeing.

The issues then become:

  1. How much of this temp work will translate into full-time employment?
  2. Will the debt markets cooperate long enough to allow deployment completion and give companies enough time to turn capital spend into revenue generation?
  3. Is this the next turn of the US economy (like we saw at the end of the 80s), or is this all too little, too late/too soon?

I don't know.  Historically speaking, whatever's going to dominate the next 10 years should be just big enough now that everyone will come out of the woodwork and say in hindsight the "called it".

sethstorm's picture

  How much of this temp work will translate into full-time employment?

None. You can't lord over people as effectively as chaining together temporary contracts.




nopat's picture

Agreed, but, it's similar to what we saw at the start of similar technological booms and the 20-year cycles.  Colleges, research firms, and individual inventors build on existing infrastructure; someone figures out a way to monetize it; companies wanting to cash in but not fully commit hire temp firms/consultants; the trend gains traction, companies start using "synergy" a lot and bring these folks in-house; saturation leads to a burst, but not before making a lot of people impossibly wealthy; lack of sector-specific investment opportunities result in a lot of cash flooding into the rest of the economy; financial products get savvy, crash, and money gets pulled until the "next big thing" appears.  Wash, rinse, repeat.

sethstorm's picture

Or how about just kill the whole temp worker idea?  The ones that want it have no problem either way; the ones that don't want it are the ones that do.

Not everyone cares to be lorded over 4 months at a time. 

Pez's picture

Doesn't matter these jobs are bound for "happy to have temp gateway jobs" in China, India... anywhere that's close to shipping ports. How many iPads are made in the USA?