Despite widespread and repeated tragic news, private sector employment in the United States had a storming month in March. That’s a good thing because this jump underscores how strong the labor market remains. The data was published by Automatic Data Processing Inc., one of the largest payroll processors in the country. It surprised everyone with an upside blowout of 155,000 more jobs. This figure surpassed analysts’ consensus estimate of 105,000 and marked a notable rise from February’s revised figure of 77,000. The ADP Research Institute assembles the report monthly. It serves as an important leading indicator to the Bureau of Labor Statistics’ Nonfarm Payrolls monthly report.
The very positive numbers released for the month of March are representative of a healthy, expanding labor market. Futures traders and stock investors follow the ADP Employment Change very closely. This information is essential to evaluating the overall health of the U.S. economy. The bigger the employment change the better it is for economic certainty confidence. It reminds us of the bullish sentiment for the U.S. Dollar, which could bring about even more inflationary pressure.
Understanding the ADP Employment Change
The ADP Employment Change report is released monthly. It counts the net number of new or eliminated positions in the non-farm private sector across the country. It’s a pretty good nugget of deep labor market wisdom, and one that everybody—the economists, the investors, the policymakers—clothes themselves in. Second, it ignores public sector employment – nearly 1 in 8 jobs. This makes it a better gauge of private economic activity, as it excludes anyone employed by the government.
Automatic Data Processing Inc. produced this deep dive report after rubbing payroll data through a rigorous analysis. This analysis included data from nearly 500,000 businesses that together employ almost 26 million workers. This rich dataset has afforded the ADP Research Institute the opportunity to create validated, anonymized employment metrics that can better inform personal, business, government and financial decisions.
Non-farm unemployment claims It’s strongly correlated with the monthly Nonfarm Payrolls data that the Bureau of Labor Statistics puts out. As such, many people see it as a harbinger of overall employment trends. A very high reading is usually good news – it indicates a strong nonfarm payrolls report is on the way. Conversely, a low figure can indicate or foreshadow labor market deterioration.
Implications for Currency and Economic Health
Market analysts see the ADP Employment Change as a key indicator to keep an eye on when judging inflationary pressures that exist in the economy. A robust labor market increases consumers’ spending capacity and confidence. This increase in demand can set off second round inflationary pressures. On the flip side, low job growth could be a harbinger of economic troubles and reduce upward pressure on inflation expectations.
Foreign exchange traders use these employment figures to make informed decisions about trading different currencies. A positive ADP Employment Change typically increases traders’ faith in the U.S. Dollar. Together, this report continues to point to a very strong and tight job market, which will provide for positive consumer spending and greater economic prosperity. Conversely, a reading lower than predicted may trigger a bearish outlook on the currency.
The Federal Reserve regularly watches these establishment employment reports because they are a key factor in informing monetary policy. The job numbers provide useful context for monetary policymakers deciding whether to raise interest rates, as rapid job growth could require additional rate increases to fight inflation. Weak job gains can push monetary policy toward a more accommodative stance, with the goal of promoting greater economic activity and job growth.
March’s Performance in Context
The March addition of 155,000 When such numbers might otherwise signal a slowdown, they indicate some resilience in the U.S. economy. This surge represents a notable bounce back in the willingness and ability of private sector firms to hire. That’s an increase from last month’s originally revised total of 77,000. Beating out analysts’ job creation expectations by 50,000 jobs is just icing on the cake for a promising outlook for Q4 economic growth.
In short, consumer confidence rises given a solid ADP Employment Change reading. That increased confidence translates into increased consumer spending, which is essential for broader economic growth. With services and construction still hiring strongly, there is room for further diversification of the growth story.