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Is ADP Payroll a Good Indicator?

This morning's ADP National Employment Report showed a much better than expected count of job losses, coming in at a loss of 491,000 jobs lost instead of the consensus of -643,000. While the count is still high, it is a slowdown in the rate of decline and on the news futures jumped to positive territory.

However, how good of an indicator is ADP? The ADP survey uses actual payroll data from ~400,000 of its US clients and only counts private-sector jobs while the US Government's Bureaus of Labor Statistics non-farm payroll numbers (to be released Friday) is a survey of businesses and includes government employees. ADP uses the BLS numbers as a baseline benchmark to which they adjust their numbers. The BLS, on the other hand, adjusts its numbers to account for new businesses that are not yet in its survey and businesses that may have gone under.

Both numbers, therefore, are not 100% accurate and are subject to future revisions but are used as a barometer of the health of the economy. How close are they? The chart above, shows that the two track fairly well to one another. Sometimes the ADP number is higher and sometimes it is lower. Looking back at data since January 2001, the average difference is only 14,000 jobs per month. However, there are times that the ADP number has been as far off from the BLS number as 200,000 jobs (Feb 2001, for example). In the current economic cycle, that range has been a bit tighter but still was off by -117,000 in October 2007 and has had +/-80,000 swings 3 of the past 15 months. If this trend holds for Friday's numbers, it could be another positive for the markets.

On the open, Bank of America , Citigroup , Disney , General Electric , and American Express are amongst the biggest gainers on the Dow .

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