Big Changes Coming to the ADP Employment Report Tomorrow

Written by Steven Hansen

Econintersect: The ADP report tomorrow will see some changes:

• ADP and Moody’s Analytics will collaborate in producing this report.
• improve the report methodology
• increases the number of industry categories
• increased sample size from 344,000 U.S. companies to 406,000, and from 21 million employees to 23 million
• increased company size classifications

As most know, I trust the ADP data more than the BLS in real time.  I have contacted ADP and expressed my concerns (see below).

Michael G. Schneider of ADP advised that

…. the new methodology of the report will further align the report’s findings with the revised BLS numbers.  In fact, 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.

But my concern was what exactly was ADP trying to do – forecast the numbers BLS would release later in the week?  This is a big concern as I believe the BLS numbers are very inaccurate in real time, especially showing trends. Michael responded:

No.  Ultimately, the ADP National Employment Report is designed to align with the final revised BLS numbers, and not those that are first reported.  We believe that our number is a better predictor of the BLS’s final, revised numbers.  The BLS revises its employment data several times: In the two subsequent months after the initial release (first print) of the employment data, the employment numbers are revised to incorporate businesses that report late.  The first print of employment data includes roughly 70% of establishments sampled. The second print incorporates an additional 20% or so of establishments. The third print incorporates another 1-2% of the sample for a final response rate of roughly 94%. Because our data is based on actual live payroll data, we believe our number will most closely correlate with – and should be compared with – the final revised BLS numbers when all of the data from the survey respondents has been incorporated.

I have great respect for Moody’s Analytics Chief Economist Mark Zandi who will be leading this new ADP
National Employment Report.  Econintersect will continue to analyze this report.

The complete ADP press release:

“Our new strategic collaboration with Moody’s Analytics marks the beginning of an exciting stage in the evolution of the ADP National Employment Report, as we work to offer an even deeper, richer and more illuminating look at U.S. monthly employment,” said Jan Siegmund, Chief Strategy Officer, ADP. “Moody’s Analytics is one of the most trusted names in economic forecasting with a vast and dedicated research team focused on national and regional U.S. employment trends. This team is led by their Chief Economist Mark Zandi, one of the world’s most respected labor market experts. We look forward to working closely with the Moody’s Analytics team to provide an insightful analysis of the changes in the U.S. labor market.”

This new collaboration allows the ADP National Employment Report to increase the number of industry categories reported and expands the number of business sizes reported each month. Other key enhancements of the report include the development of a new methodology to further align with the final, revised U.S. Bureau of Labor Statistics (BLS) numbers. A look back at historical data from 2001 to present using the new methodology shows a very strong correlation (96%) with the revised BLS numbers. In addition, the overall sample size used to create the report has been increased from 344,000 U.S. companies to 406,000, and from 21 million employees to 23 million; which accounts for more than 20% of all U.S. private sector employees. Originally launched in 2006, the ADP National Employment Report is a derived from actual payroll data from an anonymous subset of ADP’s clients in the U.S.

“The ADP National Employment Report is derived from transactional payroll data and not just survey data, making it a powerful labor market indicator,” said Mark Zandi, Chief Economist at Moody’s Analytics. “Drawing from this input and the national and regional knowledge provided by Moody’s Analytics’ dedicated team of economists, we are enhancing the monthly report, which we are confident will further align the ADP National Employment Report findings with the BLS’s fully revised numbers.”

The previous report provided three company-size classes. The enhanced ADP National Employment Report offers data according to five company-size classes:

• 1-19 employees
• 20-49 employees
• 50-499 employees
• 500-999 employees
• 1000 or more employees

In addition, the enhanced report will provide an expanded snapshot of the monthly change in nonfarm private sector employment by moving from reporting on three industries to five industries. The five industries reported constitute more than 50% of all U.S. private sector employment. The industries are aligned with the North American Industrial Classification System (NAICS), the system endorsed by the U.S. Bureau of Labor Statistics. The five industries are:

• Construction
• Financial Activities
• Manufacturing
• Professional and Business Services
• Trade, Transportation and Utilities