ADP Nonfarm Underperforms Ahead of NFP

On Wednesday (GMT+3) 31^st August, the ADP US Nonfarm Employment figures were released after a 2-month hiatus. According to the ADP, US private payrolls grew by 132,000 – down from the 268,000 in July and the forecasted 300,000 increase. The ADP took a two-month hiatus to revise its methodology and released June, July, and August’s figures at the same time. 

For August, service-related industries came up on top, adding 110,000 positions, while financial activities was the biggest loser, dropping 20,000 jobs. Besides changing the way its data is calculated, ADP now has information about wages – annual pay is up 7.6% on the month. 

“Our data suggests a shift toward a more conservative pace of hiring, possibly as companies try to decipher the economy’s conflicting signals…We could be at an inflection point, from super-charged job gains to something more normal.” ADP’s chief economist, Nela Richardson said. 

Post-Market

While the ADP has historically been a poor predictor of the much more closely-watched Nonfarm Payrolls data released by the US Bureau of Labour Statistics, how the former’s new methodology will perform remains to be seen.

The biggest question in the markets remains the same: can the US economy sustain further aggressive rate hikes from the Fed? The Fed seems to think so, signalling hawkishness at the recent Jackson Hole meeting and dashing the markets’ hopes for a coming dovish pivot. The S&P 500 is down about 4.77% week-on-week, with the most recent ADP figures reinforcing the downward trend. 

While the dollar has been boosted by Fed signalling, a seemingly slowing jobs market and rate-hike guidance from the ECB are exerting downward pressure – causing the dollar index to end flat on Wednesday. Gold prices have also been pushed downwards on signals of higher fed fund rates, falling once below $1700 as the dollar gains ahead of a relatively optimistic forecast for Friday’s Nonfarm Payrolls. 

The NFP report will be released at 15:30 (GMT+3) on 2 September. 300,000 jobs are expected to be added, with the unemployment rate expected to remain at 3.5%. While a cooling labour market might give the Fed pause with aggressive rate hikes, investors are currently betting on a 70% chance of a 75-point hike later in September. 

As a friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well.