ADP betters expectations, suggesting better NFP: The ADP Employment report released two days ago showed an increase in private payrolls of 91,000 in September and a revised 89,000 in August (-2,000). The zero print in Nonfarm Payrolls in August was taken at face value by the markets, but we think it was too gloomy compared to other labour-related reports such as ADP and the ISM's Employment components (as noted several times the markets have a habit of equating NFP with the true state of the labour market when it is in fact just one more estimate).
The ADP print of 91,000 points to the upside of the 55,000 consensus estimate for today's NFP because the ADP uses a different methodology. This means that the strikes at Verizon in August impacted NFP negatively (-45,000), but did not impact ADP. Hence these strikes should come back and boost NFP in September. Since the ADP only counts private payrolls we need to account for that in today's number as well with the change in public sector payrolls averaging -39,700 over the last six months.
Principal component also points to some upside: Using PCA on key timely labour market time series (ADP, ISM Manuf. Empl., ISM Non-manuf. Empl. and Initial Jobless Claims) we also see some potential for upside surprise in today's report with the model suggesting 63,000 new jobs in September. We use only the first principal component, which explains more than 80 percent of the variance in the time series mentioned above.
| PCA: Principal Component 1 | |
| Variance explained | 81.9% |
| Loadings | |
| ADP Employment Change | 0.54 |
| Initial Jobless Claims 4wMA | -0.46 |
| ISM Manuf. Employment | 0.47 |
| ISM Non-manuf. Employment | 0.53 |
Overall we think the already released data points to an upside surprise today and look for 75,000 added payrolls in September. Not impressive by a long shot, but enough for the economy to bumble along.
Other economic data today: We could launch into a tirade about U.K. PPI or Canadian Employment, but let us instead just acknowledge that other numbers will be released other than the U.S. Employment report, but it will be the only thing on investors' minds today.
