What Is the ADP National Employment Report?
The ADP National Employment Report (NER) is a monthly publication that offers an independent and high-frequency view of the U.S. private-sector labor market. It is part of the broader field of macroeconomic indicators and labor economics, providing crucial insights into current employment trends. The report is produced by the ADP Research Institute in collaboration with the Stanford Digital Economy Lab, leveraging anonymized and aggregated payroll data from over 25 million U.S. employees across approximately 460,000 businesses120, 121, 122, 123. As a significant piece of economic data, the ADP National Employment Report details changes in private nonfarm employment, offering breakdowns by industry sectors, firm size, and U.S. regions, along with insights into pay growth116, 117, 118, 119.
History and Origin
Automatic Data Processing, Inc. (ADP), the company behind the report, was founded in 1949 by Henry Taub as Automatic Payrolls, Inc., initially focusing on manual payroll processing113, 114, 115. The company later changed its name to Automatic Data Processing, Inc. in 1961, as it began to incorporate punched card machines and mainframe computers into its operations111, 112.
The ADP National Employment Report itself launched in 2006110. For a significant period, it was produced in collaboration with Moody's Analytics105, 106, 107, 108, 109. In August 2022, the ADP Research Institute announced a new methodology for the report, partnering with the Stanford Digital Economy Lab to provide a more comprehensive, high-frequency view of the labor market, incorporating both jobs and pay data102, 103, 104. This evolution aimed to provide richer labor market analysis, distinct from being a direct forecast of government numbers100, 101.
Key Takeaways
- The ADP National Employment Report is a monthly measure of private-sector employment changes in the U.S., based on actual payroll data.
- It provides insights into job gains and losses across various industries, company sizes, and geographic regions.
- The report also includes "Pay Insights," detailing annual pay growth for job-stayers and job-changers97, 98, 99.
- It serves as a key economic indicator for analysts, investors, and policymakers to gauge the health of the U.S. labor market95, 96.
- The report is released before the U.S. government's more comprehensive employment figures, offering an early glimpse into labor market conditions92, 93, 94.
Interpreting the ADP National Employment Report
Interpreting the ADP National Employment Report involves examining the reported change in private nonfarm employment, often comparing it against economists' forecasts and historical employment trends90, 91. A higher-than-expected increase in jobs generally signals a strengthening economy and a robust private sector, which can influence sentiment in financial markets88, 89. Conversely, a lower-than-expected number, or a decline in jobs, may suggest a cooling or weakening labor market85, 86, 87.
Beyond the headline number, a deeper analysis involves looking at the sectoral breakdown to understand which industries are expanding or contracting, and the size of firms experiencing job changes81, 82, 83, 84. For instance, recent reports have detailed gains in areas like leisure and hospitality or manufacturing, while professional and business services sometimes show declines78, 79, 80. The "Pay Insights" component, which shows median annual pay growth, offers additional context on wage pressures within the labor market76, 77. Persistent strong wage growth, even with slowing job gains, can suggest ongoing tightness in the labor market74, 75.
Hypothetical Example
Imagine it's the beginning of July, and the financial news is abuzz about the upcoming ADP National Employment Report for June. Analysts are expecting the U.S. private sector to have added 100,000 jobs.
On the release day, the ADP National Employment Report shows that private sector employment decreased by 33,000 jobs in June71, 72, 73. This figure is significantly below expectations, indicating an unexpected contraction in the labor market. Further details within the report reveal that while some sectors like construction and manufacturing saw slight gains, significant job losses occurred in professional and business services and education and health services68, 69, 70. The report also notes that annual pay for job-stayers was up 4.4%, suggesting that while hiring slowed, wage growth for existing employees remained relatively stable66, 67.
Investors reviewing this hypothetical report might react by adjusting their expectations for broader economic growth and corporate earnings, potentially leading to shifts in portfolio allocations. This unexpected decline could signal a softening economy, influencing investment decisions in various industry sectors.
Practical Applications
The ADP National Employment Report serves multiple practical applications across investing, economic analysis, and policymaking. As a timely economic indicator, it provides an early snapshot of the U.S. private labor market two days before the Bureau of Labor Statistics (BLS) releases its more comprehensive Employment Situation Report62, 63, 64, 65. This makes the ADP report a valuable tool for economic forecasting and anticipating trends in the broader economy.
Investors closely monitor the ADP National Employment Report for clues about economic health, which can influence stock market movements, bond yields, and currency valuations60, 61. For instance, a strong report might signal consumer spending strength, impacting sectors like retail, while a weak report could lead to concerns about economic slowdowns and potential impacts on corporate profits. Businesses use the report's detailed breakdowns by industry and company size to understand hiring trends and wage pressures, which can inform their strategic planning and human capital management decisions59. Policymakers, including the Federal Reserve, consider labor market data, such as that provided by the ADP report, when evaluating economic conditions and formulating monetary policy related to interest rates and inflation56, 57, 58. For example, if the ADP data shows a rapidly cooling labor market, it could influence discussions about future interest rate adjustments, although the Federal Reserve typically prioritizes inflation control54, 55. The report's data on pay insights further aids in understanding inflationary pressures from wage growth52, 53.
Limitations and Criticisms
While the ADP National Employment Report provides valuable insights, it is important to acknowledge its limitations and criticisms. One primary point of discussion is its historical accuracy as a predictor of the U.S. Bureau of Labor Statistics (BLS) Employment Situation Report. Although both reports generally track similar employment trends over time, significant month-to-month discrepancies can occur49, 50, 51. Critics have pointed out that the ADP report's forecasts have sometimes diverged substantially from the BLS figures, with one economist noting an average forecast error of 84,000 since August 202248.
These differences stem from methodological distinctions. The ADP report is based solely on the payroll data of its client companies, representing a significant portion but not the entirety of the U.S. private workforce45, 46, 47. It primarily measures the number of employees on ADP client payrolls44. The BLS report, on the other hand, is a more comprehensive measure derived from two surveys: the Current Employment Statistics (CES) establishment survey, which surveys employers, and the Current Population Survey (CPS) household survey, which surveys individuals42, 43. The BLS report also includes government employment, which the ADP report excludes40, 41. Furthermore, the ADP report may count individuals as employed if they remain on payroll, even if they are not actively working due to strikes or other temporary disruptions, which can lead to differences compared to BLS data39. While the ADP Research Institute and Stanford Digital Economy Lab continuously refine the report's methodology for greater robustness and a high-frequency view of the labor market36, 37, 38, users should consider these methodological variations when interpreting the data.
ADP National Employment Report vs. Bureau of Labor Statistics (BLS) Employment Situation Report
The ADP National Employment Report and the U.S. Bureau of Labor Statistics (BLS) Employment Situation Report are both key sources of U.S. labor market data, but they differ in scope, methodology, and release timing. Understanding these distinctions is crucial for accurate economic forecasting.
| Feature | ADP National Employment Report | BLS Employment Situation Report |
|---|---|---|
| Coverage | Focuses exclusively on nonfarm private sector employment34, 35. | Covers total nonfarm employment, including both private and government sectors32, 33. |
| Data Source | Based on actual, anonymized payroll data from ADP's client companies (over 25 million U.S. employees)28, 29, 30, 31. | Derived from two extensive surveys: the establishment survey (payroll data from employers) and the household survey (telephone survey of individuals)26, 27. |
| Methodology | Produced by the ADP Research Institute in collaboration with the Stanford Digital Economy Lab23, 24, 25. | Compiled by the U.S. Bureau of Labor Statistics, a federal agency21, 22. |
| Release Timing | Typically released two days before the BLS report, on the first Wednesday of each month18, 19, 20. | Released on the first Friday of each month15, 16, 17. |
| Purpose | Offers an independent, high-frequency view and early glimpse into private sector employment trends12, 13, 14. | Provides a comprehensive and official measure of the entire U.S. employment situation, including unemployment rates and labor force participation10, 11. |
While the ADP report can serve as a useful preview, the BLS report is considered the official and more comprehensive measure of the nation's employment trends and overall economic data7, 8, 9. Both reports, however, tend to align in their general direction over longer periods, despite potential monthly discrepancies due to their differing methodologies5, 6. Investors and analysts often use them in conjunction to gain a complete understanding of the business cycles and labor market dynamics.
FAQs
What does a high ADP National Employment Report mean for the economy?
A high ADP National Employment Report, indicating significant job gains in the private sector, generally suggests a strengthening U.S. economy. This can lead to increased consumer spending, which is a major driver of economic growth and can influence Gross Domestic Product (GDP)4.
Is the ADP National Employment Report seasonally adjusted?
Yes, the figures presented in the ADP National Employment Report are seasonally adjusted to account for predictable fluctuations in employment that occur at different times of the year, such as holiday hiring or seasonal construction work3. This adjustment helps to reveal underlying employment trends more clearly.
How does the ADP National Employment Report affect financial markets?
The ADP National Employment Report can influence financial markets by providing early signals about the health of the labor market and the broader economy. A stronger-than-expected report might lead to expectations of higher interest rates as the Federal Reserve might consider tightening monetary policy to combat potential inflation, which can affect bond prices and stock valuations1, 2. Conversely, a weaker report could signal economic slowing, potentially leading to different market reactions.