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ADP Overstates 419,000 Job Growth In Past Year?

  • Written by Syndicated Publisher No Comments Comments
    November 1, 2012

    ADP has announced revised methodology to enhance its monthly job reports, no doubt because its prior numbers simply were grossly inaccurate.

    Indeed, I stopped commenting on ADP numbers because I thought they were absurd.Let’s take a look at their revised methodology. Here is the ADP Jobs Report for September using the revised methodology.
     “Private sector employment increased by 88,200 jobs from August to September, according to the September ADP National Employment Report®. The report, which is derived from ADP’s actual payroll data, measures the change in total U.S. nonfarm private employment each month on a seasonally adjusted basis. Last month’s employment estimate was revised down from 80,000 to 76,400 jobs.”

    Please note that last sentence. Compare to what ADP actually reported last month:

     “Employment in the U.S. nonfarm private business sector increased by 162,000 from August to September, on a seasonally adjusted basis. The estimated gains in previous months were revised lower: The July increase was reduced by 17,000 to an increase of 156,000, while the August increase was reduced by 12,000 to an increase of 189,000.”
    Got that? September private business sector increased by 162,000 but now we see September was revised down to 76,400 from 80,000 (not 162,000 as actually reported).Revision MatchingCheck out this statement from ADP FAQs.Using this methodology developed for ADP by Moody’s Analytics, our adjusted historical ADP National Employment Report data dating back to 2001 has a 96 percent correlation with the revised BLS numbers.

    ADP revisions match BLS revisions over time. Lovely.

    Spotlight on Revisions 

    ZeroHedge totaled up the ADP revisions for 2012 and concluded ADP “Cancels” 365,000 Private Jobs Created In 2012.

    I conclude the same thing. However, things are even worse than Zerohedge states. Here is a chart that I put together of ADP revisions.

    Note: numbers in charts and tables in thousands.

    ADP Original Vs. ADP Revised Monthly Job Gains or Losses

    click on chart for sharper image

    ADP was way underestimating job gains in 2011 and way over-estimated gains in 2012.

    The net effect was 136,000 jobs over 20 months (about 6,800 per month). However that is a very misleading way of looking at things as the following table shows.

    Time Period Analysis

    As you can see, I match ZeroHedge for 2012. However, for the last year, ADP was off by an even higher 419,000 jobs, nearly 35,000 jobs a month for an entire year!For 2011, ADP was off in the other direction by 229,000 jobs, roughly 19,000 per month. Here is the complete table that I worked from.ADP Data Points Table
     TrimTabs Investment Research said today that the Bureau of Labor Statistics’ (BLS) hefty upward revision of its August job growth estimate proves that the BLS missed the important acceleration in job growth this summer because it relies on incomplete surveys that are frequently revised.

    Trimtabs said the BLS’ initial estimate for August job growth was 96,000. Today, the BLS revised its August estimate upward 48% to 142,000 new jobs. Meanwhile TrimTabs estimate, based on real-time withholding tax data, said employment growth in August was 185,000.

    TrimTabs reported the U.S. economy added 210,000 jobs in September while the BLS reported a job gain of only 114,000. TrimTabs said it expects the BLS to revise its September jobs estimate of 114,000 substantially higher next month.

    I did not buy that story then, and I do not buy it now. More than likely, the BLS was catching up to misses earlier in the year, perhaps even 2011 vs. a genuine recent hiring spurt.

    Obamacare Employment Analysis

    I am sticking to what I said regarding Obamacare, especially Obama Slashes Four Hours Off Definition of “Full-Time” Employment

    Additional Obamacare Employment Analysis

    By the way, these ADP revisions suggest the stated unemployment rate is blatantly preposterous, something I say in every jobs report.

    Mike “Mish” Shedlock



    Images: Flickr (licence attribution)

    About The Author

    Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.  Visit Sitka Pacific’s Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

    You are currently viewing my global economics blog which typically has commentary every day of the week. I am also a contributing “professor” on Minyanville, a community site focused on economic and financial education.  Every Thursday I do a podcast on HoweStreet and on an ad hoc basis contribute to many other sites.

    When not writing about stocks or the economy I spend a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com.