1/5/2012
By David Urani, Research Analyst

Okay, so this morning we got an ADP employment report that really knocked it out of the park; nonfarm payroll gains of 325k smashed expectations yet the market's reaction was muted and the market stayed red. When it comes down to it, nobody seems to believe poor old ADP anymore because it's had a history of not really matching up with the all-important government numbers all the time.

Does the ADP really not matter at all? I decided to put together the payroll numbers from the past several years, including the divergences between the ADP and BLS nonfarm private job gains each month (below).

As it turns out, under normal circumstances the biggest miss by the ADP in the last four years versus the BLS was when it overshot by 158k in April 2009. The ADP missed by 210k in November 2008 during financial collapse (when readings were extraordinarily volatile). For today's purposes I excluded that reading, considering there's no reason to believe this month will be as volatile as 2008 (even April 2009 was an extreme month with 787k BLS jobs lost but I do want to build a worst-case scenario). 

So assuming that 158k is about as bad as ADP misses in any normal month, I'd say we are looking pretty good headed into tomorrow's BLS report. The current consensus estimate is for 150k total nonfarm jobs gained in December (private + public). Given the 325k ADP result today even if it overshot by 158k, the BLS private reading would still be 167k. Beyond that, the public sector would have still had to lose 17k jobs for the BLS total reading to match the 150k consensus. I'm starting to smell a BLS beat tomorrow.

David Urani
Wall Street Strategies