The markets continued their upward trajectory on Friday, the first day of the second quarter, thanks to better-than-expected job numbers in the United States.NICHOLAS KAMM
It would be unsurprising if some at payroll processing firm ADP are questioning the decision to publish a monthly report on U.S. hiring.
For two months, ADP's survey has been spectacularly out of sync with the official jobless survey published by the Labor Department. The ADP numbers suggested big employment gains in December and January, only to be undermined a couple of days later by the government figures, which depicted an economy unwilling or unable to hire enough people to keep up with changes in the working population.
As a result, ADP has become a target of derision. "The month-to-month changes in ADP are not generally very useful in predicting private payrolls," Nicholas Tenev, an economist at Barclay's Capital, told clients in a note on Wednesday. The ADP number exceeded private payroll increases by more than 100,000 in both December and January and underestimating the official figure by an average of more than 50,000 over the previous nine months, Mr. Tenev said.
ADP's February employment report, published Wednesday, shows another big gain in hiring: 217,000 positions on a seasonably adjusted basis, compared with an upwardly revised 189,000 in January. A number above 200,000 is what is needed to outpace increases in the labour force, and therefore lower the unemployment rate.
The question, then, is whether it will be third time lucky for ADP? The answer will come Friday, when the Labour Department is scheduled to release its February jobless survey. Some economists are predicting ADP might be telling them something this time.
"Other things equal, the rise in ADP in February, taken with other indicators like claims and ISM employment, is consistent, we reckon, with official private payrolls rising by about 250,000," Ian Shepherdson, chief U.S. economist at High Frequency Economics, said in a research note Wednesday.
Paul Ashworth at Capital Economics also predicts the Labor Department report will show an increase of about 250,000 in February. Like Mr. Shepherdson, Mr. Ashworth argues that ADP might have in fact been the more reliable indicator in January, when snow storms wreaked havoc with the U.S. economy. That's because ADP counts all workers on payrolls, while the Labor Department only counts workers who were paid during the survey period. Therefore, the government's counters might have missed a large number of employees who had the misfortune of missing out on a paycheck because they were snowed in.
Federal Reserve chairman Ben Bernanke reiterated Wednesday in testimony at the House Financial Services Committee that he believes there soon will be a pop in hiring. "We do see some grounds for optimism about the job market over the next few quarters, including notable declines in the unemployment rate, a drop in claims for unemployment insurance, and an improvement in firms' hiring plans," Mr. Bernanke said.
The unemployment rate dropped to 9 per cent in January from 9.8 per cent in November; the four-week moving average of new claims for jobless benefits dropped to 402,000 last week from 473,500 a year earlier; and the Institute for Supply Management said Tuesday that its index of hiring intentions at factories jumped t the highest in 38 years.
But not all share Mr. Bernanke's hopefulness. There still are a significant number who suspect the U.S. economy is stuck in a rut. Demand is stronger, but companies have learned to supply their customers with fewer workers. There are doubts that the U.S. economy is growing fast enough to stir companies to take on new salaries.
Steven Ricchiuto, chief economist at Mizuho Securities was unmoved by the ADP report. "Heading into Friday's data, the ADP report will keep the growth bull calling for a 250,000 payroll increase," Mr. Ricchiuto wrote in a note to clients. "This sizable jobs gain is seen as 150,000 new jobs and 100,000 make up from weather related distortions a month ago. My number on the other hand stays at 150,000 since I am not convinced that January's shortfall was a product of adverse weather conditions."
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