ADP says the private-sector added 176,000 jobs in June. Can we trust it?

July 5, 2012

The May jobs report was a bummer: The Bureau of Labor Statistics said the economy added a measly 69,000 positions. The question since then has been: Was May a bad month? Or is it the beginning of a sharp deterioration in the economy?

Today, the ADP payroll survey -- a closely watched estimate of private-sector job growth -- came in a lot better than expected. ADP says the private-sector added 176,000 jobs on June. That's well above the 100,000 economists were predicting, and if Friday's official BLS report looks anything like it, it'll be a strong sign that May was just a bad month rather than a real interruption to the (anemic) recovery.

So is ADP right? We...don't know. It's definitely not infallible. In May, it said private-sector payrolls grew by 136,000, but the official Bureau of Labor Statistics estimate put growth at 69,000. David Semmons at Standard Chartered notes that " the last year has seen the ADP typically more optimistic on the labour market than the NFP that follows it, with +44,000 average error." So there's definitely evidence that the ADP survey returns slightly sunnier results than the official survey lately.

But, in general, it remains a worthwhile indicator. Over at Business Insider, Joe Weisenthal worked up a chart comparing the ADP and BLS numbers, and as you can see, it's a pretty close fit, at least most of the time:

Meanwhile, the economy analysis firm Capital Economics looked more deeply into the ADP report and found something interesting: The gains are coming from the service sector.

Industry added just 16,000 net new jobs, while services added 160,000. This perhaps suggests that the slowdown has so far been confined to the smaller, industrial sector, thereby supporting our view that the plunge in the ISM manufacturing index in June may not signal gloom and doom for the wider economy. We’ll know more after the release of the ISM non-manufacturing index at 10.00 EST. Meanwhile, the additional news that initial jobless claims fell to 374,000 last week from 388,000 the week before is another sign that, although labour market conditions are not as good as earlier in the year, they are not deteriorating drastically.

In other good labor market news, fewer people are filing for unemployment benefits, which usually suggests fewer people are finding themselves unemployed. We'll know more Friday when the official BLS numbers are released.

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Brad Plumer | July 5, 2012