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Why Traders Donít Trust the ADPís Read on Fridayís Jobs Report.
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Why Traders Donít Trust the ADPís Read on Fridayís Jobs Report.

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Why Traders Donít Trust the ADPís Read on Fridayís Jobs Report.

That giant thud you felt at 8:15 Eastern time this morning was not another freak earthquake but rather the impact of thousands of jaws on Wall Street hitting the floor all at once when the ADP December payroll number hit the tape.

But traders quickly gathered themselves and moved past the blockbuster number, largely because there are bigger European fish to fry, but also because they still canít bring themselves to trust the ADPís numbers.

RBCís Tom Porcelli sent along this chart that illustrates the reason for the skepticism about ADP numbers, particularly around the holidays.

As you can see, since 2006, the average gap between initial December ADP numbers and the initial private non-farm payroll numbers reported by the government has been 122,000 jobs. In November, itís been 120,000 jobs.
Those are numbers big enough to drive Michigan Stadium through. For perspective, the average miss of all non-December months has been 79,000.
Porcelli writes:
We cannot be more clear on this: ADP has done a very poor job giving you an early read on private payrolls. This is the historical record Ė not a slice-it-up analysis by a couple of economists.
Let us be further clear: after years of just a downright dour backdrop, we would love nothing more than for this number to be right (it gets tiring writing about how dismal things are), but we will not let a mediocre indicator with a bad forecasting track record dictate when itís time to change our tune.
As for our estimate for Friday, given the above we are not changing our Private NFP call of 137k.
Remember, as Joel Prakken of Macroeconomic Advisers, which helps ADP put these numbers together every month, said on CNBC this morning, subsequent revisions to the governmentís NFP data have made the ADPís track record look a little better.

Still, traders are going to trade on the initial NFP read they get tomorrow. Thatís probably unfair and illogical, but itís the world we live in, and until we start getting revisions, these are the only numbers we have.


Why Traders Don't Trust the ADP's Read on Friday's Jobs Report - MarketBeat - WSJ

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