ADP Non-Farm vs Non-Farm Employment Change

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The most anticipated economic announcement is Non-farm employment change which generally comes out the first Friday of every month.  Non-farm measures the number of jobs created or lost from the previous month which is a good indication to how the US economy is doing.  There are two Non-farm announcements so which one is more accurate?

Bureau of Labor Statistics

The Bureau of Labor Statistics (BLS) releases the official number for the change in jobs.  The numbers are obtained by surveying a number of businesses. About 60% of the businesses have greater than 20 employees so they do their best to get a sample of all types of businesses in many different industries.  As the name implies, they do not count farm jobs.

The problem with the numbers is they rely on businesses accurately doing the survey. Of the respondents, they estimate what the number would be over all so there is plenty of room for error.

The BLS non-farm has long been then announcement to watch, but in the last couple of years a new measurement for employment change has rivaled the original.

Automatic Data Processing

Automatic Data  Processing (ADP) has about 500,000 US business clients for which the do payroll.  They take about 399,000 of those clients and measure the difference in payroll month to month.  When the ADP non-farm first release they claimed it would give us an idea for what the official non-farm would be and it caused quite a stir in the financial markets, but the numbers where not close at all.

The ADP numbers for November 2008, released December 3, where -250k which means there was a loss of 250,000 jobs in the US.  The BLS non-farm number was -533k, meaning a loss of 533,000 jobs.  There are a lot of jobs between the two.

Which one is correct?  

There have been months were ADP was positive and BLS was negative.  The May 2008 numbers, released in June, had ADP at 40,000 new jobs created and BLS showed a loss of 49,000 jobs.  From what I can tell the more accurate release isn’t what is important.  What the market views as important is the truth.  For now the BLS non-farm remains the winner in the non-farm labor report battle, but that doesn’t mean it is the most accurate number.

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