In anticipation of the much-watched monthly (February) US Non-Farm Payroll number that comes out this Fri Mar 10th, I though I would highlight that the monthly US ADP Report came out this morning and was rather stout.
The ADP report is comprised of the payroll company's monthly data from about 500,00 US industrial business clients across 24mm employees...so broad enough to matter.
Today, the month-over-month change was +298,000. A big number, to be sure. For context, the economists who model these types of data series were looking for +187,000 new jobs, so the economy appeared to add about an extra 100,000 from expectations. And last month's report was moved up from +246,000 to +261,000, to boot.
With that in mind, we might have some insight into what this Friday's non-farm payroll number will look like in the US. The economist crowd is estimating that it will come in at +200,000 vs January's +227,000.
Time will tell, but we could also look a the correlation between ADP and the non-farm payroll data. As you can see from the chart below, the correlation looks fairly "tight" or "high". That is to say, it is not often that the two payroll reports vary more than by 100,000 jobs. Could the non-farm payroll on Friday come in closer to +300,000? That would really be something.
The reason why this is so important is because a strong number will be another good reason for the Fed (US Federal Reserve Board) to raise rates when they conclude two days of meeting on Mar 15th. At this stage, only 3 of about 26 Wall St Economists do not expect the Fed to raise rates next week..the other 23 think they raise by .25%.
Fed officials have been all over the press the past two weeks making comments about raising rates next week, so it is all but a certainty they will go up.
Now for those worried about rising rates, I would add that the bulk of the damage has already been done in the bond market. Our job now is to 1) ascertain if they will move to a more aggressive path on rate hikes and 2) what might leave them more cautious and on a slower path.
At this stage, I only have one possible reason why they may pass on raising rates next week and may put them on a slower path than the market thinks. Tune in tomorrow.