ADP Non-Farm Employment Change Report
Automatic Data Processing released its private sector payroll data for October this morning, showing a more robust labor market than predicted (+239K vs. +195K consensus and the downwardly revised +192K for September). The headline for August was revised downward from the initial 1895K to 132K. The news sent pre-markets tumbling from flat to down, then substantially down.
Considering the negative revisions to August and September, which added up to a total of -69K jobs filled, October’s ADP headline of +44K puts us very well in line with forecasts overall in the labor market. With a 12-month ADP average of +319K jobs and a 6-month average of +262K jobs, respectively. Therefore, the total from this morning still brings this general trend down.
The big issue is whether or not this will be enough for the Fed to relax its stance today. That question has a negative response. Market players expect the Federal Reserve to raise interest rates by 75 basis points (bps) at 2 pm ET today. Still, they are hoping for a more dovish tone from Fed Chair Jay Powell in his press conference after that. Today’s statistics, and the general economic prints we’ve seen since the previous Fed meeting, are unlikely to support any easing from the Fed, either in words or deeds.
According to the ADP non-farm employment change report released this morning, the Services sector added +247K jobs last month while the Goods-producing sector lost -8K. These statistics are trending upward, showing improvement from the Construction and Manufacturing data we’ve seen recently, reflecting prior months. Among economists in the United States, the forecast for Friday’s non-farm payrolls is +205K. The Fed’s aggressive stance is not expected to change even with that figure.
Within the Services sector, the Leisure & Hospitality sector (+210K) is once again the leader in employment growth. The Natural Resources and Mining industry (oil drilling) added 11,000 jobs, while the Trade, Transportation, and Utility sector added 84,000. However, several sectors, like Manufacturing (-20K) and Information (-17K), have been laying off workers. The most significant increase (+181K) occurred in businesses with between 50 and 499 workers, followed by (+25K) in the small business sector and (-4,000) in the large business sector.
The Fed’s most significant concern with robust employment figures is the potential for wage increases, which is a formula for ongoing rising inflation. Average wage increases were +15.2% for those who switched employment during the last year and +7.7% for those who remained put. The Federal Reserve anticipates the most persistent features of inflation to keep us orbiting over the optimal +2% inflation rate.
As a result, the anticipated rate increase of 75 basis points (bps) may be recorded today. Don’t bother hoping for a shift in terminology that would allow the markets to surge higher on a future Fed view. The Fed would like to see a more subdued stock market as a whole, once again, to lower overall inflation indicators. However, this morning’s ADP non-farm employment change report resulted in pre-market futures declining. Still, it did not cause a complete collapse.
The main issue for today is whether or not investors are optimistic about Powell’s comments because they believe the market has already priced in much of the valuation risk and don’t expect further declines. Later on today, we will know for sure.
Featured Image- Megapixl @ Innuasha84
Author Shariq Khan 
