The Gulf in January Jobs Reports Is Sign of ‘Abnormal Times,’ ADP Economist Says

(Bloomberg) -- Wall Street strategists had two wildly different pictures of the U.S. job market to weigh against each other this week. One, from the ADP Research Institute, showed the number of jobs tumbled in January. The other, from the U.S. Labor Department, that payrolls grew at a surprisingly rapid pace.

ADP's report on Wednesday showed that companies cut more than 300,000 jobs during the first month of the year, while the government's figures Friday showed businesses added nearly 450,000 new positions.

But that gap of more than 700,000 may not seem so stark when more numbers flow in, according to ADP Chief Economist Nela Richardson. 

One source of the discrepancy, she said: the adjustments that the Labor Department makes to factor out seasonal changes in employment, an effort to make the monthly figures better depict the baseline trend of the economy. ADP also counts the number of people on active payrolls, whether they get a paycheck or not, she said, another difference from the government. 

“So those differences are small in normal times, and they're a bit bigger in abnormal times, like we are in now,” she said on Bloomberg's “QuickTake Stock” streaming program on Friday. “Over the course of several months, not necessarily one-month estimates, you do see a greater alignment.” 

But the near-term gulf underscored the heightened significance Wall Street is putting on economic indicators as it tries to gauge how aggressively the Federal Reserve will raise interest rates this year to keep the economy from overheating. 

Some analysts, economists and White House officials expected Friday's Labor Department figures to echo the weakness reported by ADP, anticipating that the coronavirus surge would dampen employment growth at the start of the year. At TD Securities, for instance, economists predicted “downside risk” to their estimate of 200,000 jobs lost. Some estimates called for U.S. payrolls to decline by as much as 400,000.

As a result, the unexpected strength in January, with a broad-based gain of 467,000 in total nonfarm payrolls, which also includes government employment, caught markets by surprise, sending bond yields surging and causing traders to ratchet up wagers that the Fed will raise interest rates by as much as half a percentage point in March. It also showed a 709,000 upward revision to the prior two months. 

Richardson said that upward revision brought the Labor Department's December estimate closer to ADP's, which was far stronger than the government's initial figures. 

“That story is still being written, frankly,” she said. “If you looked at the revisions from November to December, in December we looked off, too. It turns out we're not as off as was originally reported because those numbers were revised up by so much in December.”

Read more: ‘Crazy Mess' of Jobs Data Has Economists Getting It Wrong Again

“The big story this month was the revisions,” said Richardson. “We thought it was going to be about worker absenteeism, taking time off for sick leave because of omicron. No -- it's about the revisions and they were revised up substantially in November and December.” 

She added that Friday's figure “shows the strength continued even as omicron surged, so it gives us some reflection on the pattern of job gains, not over the course of 2021, but heading into a new year.”

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