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How The ADP Report Differs From The NFP report

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How The ADP Report Differs From The NFP report
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The first Thursday of each month is invariably sandwiched between two job market reports, namely the ADP private sector payrolls report — released by human resources and management software and services provider Automatic Data Processing (NASDAQ: ADP) — and the Department of Labor's monthly non-farm payrolls report.

Invariably, both the reports move the markets, and are therefore termed as first-tier reports.

Ever wondered why two reports capable of spooking the markets come out within a gap of a day?

Survey, Sample And Methodology

The NFP report is based on surveys conducted by the Current Employment Statistics program as well as the Current Population Survey, also called the household survey.

The CES program surveys 147,000 businesses and government agencies, representing 634,000 individual worksites. The survey covers all 50 of the U.S. states, the District of Columbia, Puerto Rico, the Virgin Islands and about 450 metropolitan areas and divisions.

The report provides data on all employees, average hourly earnings, average weekly earnings and average weekly overtime hours, with industry and geographic details. Payroll data is published both for private and government sectors, while hours and earnings data published only for private sector.

See also: Retail Job Losses: Does This Point Toward Protracted Sectoral Weakness?

Meanwhile, the results of the CHS, which is also a part of the NFP report is bases on a sample survey of 60,000 eligible households. The sample here is designed to reflect the civilian non-institutional population, excluding those in Armed Forces and people living in institutions such as residential nursing and care facilities and correctional institutions.

The household survey is primarily meant to provide data on employment and unemployment based on many demographic characteristics such as age, sex and race, etc. This survey is done by the U.S. Census Bureau for the Bureau of Labor Statistics, a part of the DOL.

The ADP report is based on data from ADP's payroll files and is processed by Moody's Analytics.

The processing includes several steps, including removal of outliers, identifying clients by industry and company size in order to combine the individual client data into industries and company size, the creation of matched pairs seasonal adjustment and adjustment to match the industry and size distribution of the BLS's employment data.

Correlation Between ADP And NFP Surveys

An analysis of the relation between the ADP and NFP surveys over a three-year period showed that only less than one-fourth of the time did the private payrolls data of NFP fall within the plus, or minus 10 percent range of ADP's data.

Some of the difference could have been accounted for by the fact that the CES survey takes into all employees who are paid, while the ADP survey counts only active employees. Therefore, temporary labor force changes such as strikes or structural changes can impact the numbers.

What Awaits Traders This Friday?

ADP's July report released on Wednesday showed that the private payrolls expanded by 178,000, more than the 158,000 jobs added in June. This exceeded the consensus estimate of 173,000.

Meanwhile, the weekly jobless claims data released earlier today showed that initial claims for unemployment benefits fell to 240,000 in the week ended July 29 from 245,000 in the past week.

All eyes are riveted on Friday's NFP report, with economists, on average, estimating job gains of 178,000, with 175,000 expected to have added by the private sector.

Despite all the data-obsession, the labor market in the U.S. live and kicking, giving leeway for the Fed to act, as it pursues monetary policy normalization.

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