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Which Is a Better Forecaster—ADP or the Ground Hog?

ADP's private sector jobs report shows an increase of 187,000 in January, while economists expect to see about 145,000 private sector jobs when the government's employment report is released Friday.

But is it a valid forecaster? J.P. Morgan economist Michael Feroli today compared its predictive powers to a ground hog. (Scroll down to see the complete graph and chart.)

"Like Punxsutawney Phil, which also came out this morning, it's hard to say what the ADP report actually means for the future," writes Feroli.

Pennsylvania's famous ground hog didn't see his shadow, suggesting an early spring. If he had seen his shadow, winter would supposedly last another six weeks.

Also like Phil, the ADP private sector payrolls report is widely watched, despite the fact that some economists dismiss it. For December, ADP first reported 297,000 private sector jobs were added. The government's December report, released two days later, showed 113,000 private sector jobs, and a total 103,000 non farm payrolls were added. The ADP December number was revised down to 247,000 today.

Feroli did include an interesting look at the ADP data and the parallel government jobs reports. The charts do correspond but it's tough to say if there's a specific pattern.

"For awhile there, at least you knew the direction of the bias, but now it's switched back and forth too many times," Feroli said in an interview.

He said he's sticking to his forecast for 155,000 in private sector employment in January, and a 140,000 increase in total non farm employment. Phil's performance today was impacted by winter weather, just as the jobs report is likely to be.

Economists are forecasting about 140,000 in non farm payrolls but they say a wild card is the number of workers impacted by winter weather, which could reduce the overall number. Feroli said that number is hard to gauge and it could be meaningless or it could be 50,000 jobs.

Goldman Sashes economists, meanwhile, wrote today that ADP's report was stronger than expected in January. "Although its forecasting record is spotty, the report is consistent with our expectation that the trend in private-sector hiring is picking up," they wrote.

ADP showed a pickup in hiring in January by service companies of 166,000. Goods producing companies showed an increase of 21,000 and manufacturing jobs rose 18,000. The bulk of hiring was done by small and medium-sized companies. Small firms added 97,000 workers and medium-sized companies added 79,000. Employment at large companies rose just 11,000.

private_nonfarm.jpg

Change in Total Private Nonfarm Payrolls 000s

BLS
ADP
BLS-ADP
FIRST PRINT REVISED FIRST PRINT REVISED FIRST PRINT
Nov 09 -18 75 -169 -125 151
Dec 09 -64 -83 -84 -149 20
Jan 10 -12 16 -22 -82 10
Feb 10 -18 62 -20 3 2
Mar 10 123 158 -23 32 146
Apr 10 231 241 32 65 199
May 10 41 51 55 63 -14
Jun 10 83 61 13 26 70
Jul 10 71 117 42 42 29
Aug 10 67 143 -10 37 77
Sep 10 64 112 -39 29 103
Oct 10 159 193 43 79 116
Nov 10 50 79 93 92 -43
Dec 10 113 297 247 -184
Jan 11 187
Source: JP Morgan

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