ADP Numbers for April 2012: Meaningful or Myth?

ADP Numbers for April 2012:  Meaningful or Myth?

From MSNBC's Money, under a headline that says "Companies add fewer jobs than expected raising concerns about the economy":

Payroll processor Automatic Data Processing said U.S. companies added 119,000 jobs in April, down from a revised 201,000 in March, as manufacturers and construction companies trimmed their work forces. Economists had expected companies to expand their staffing by 170,000 workers in April, compared with the originally reported 209,000 in March.

The ADP report serves as a preview to the government's April employment data, which will be issued Friday. The economy added 120,000 jobs in March, about half the gains posted in the previous three months, disappointing investors hoping for continued signs of a strengthening economy.

When attempting to make any sense of this ADP report, here are a few things to consider:

• This is an estimate based on ADP's survey of its payroll processing private-sector clients.  Over time, it moves in parallel with the government's BLS Establishment numbers, but it is not perfectly in synch with the government's numbers.  Also, the government reports may be more accurate in tallying small startups which may not be using a payroll processing service.  The ADP numbers usually run about 300,000 to 600,000 lower than the BLS private jobs numbers.
• Yesterday, the ISM (Institute of Supply Management) monthly report indicated expansion in the manufacturing sector; this report shows a mild contraction in the manufacturing sector.  Take all monthly reports with a grain of salt.
• One of the things that seems to be more prevalent recently is that the stock market moves up or down not in concert with any reports of job growth (we haven't had any decline in total private jobs in two years.), but in concert with reports of job growth compared to what the pundits THINK the reports should say.  This ADP report, if supported by BLS data, still shows an increase of 119,000 jobs, but the pundits expected 170,000 jobs so it is seen as a disappointment.
• Headlines are usually sensational and often absurd.  The headline yesterday after the ISM report said something like "Recovery on track"; this one says "Concerns about the economy".  If the Friday report is better than expected, you can expect a swing back to "Robust recovery".  Several grains of salt, actually.

The ADP report also shows that small (1-49 employees) and medium sized companies (50-499 employees) in the service-providing sector (vs. the manufacturing "goods-providing" sector) added the most jobs last month.

More commentary on this week's reports HERE.