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On Wednesday, the ADP non-farm payrolls figure is due to provide the earliest indication of February employment change. There are two ways to look at this figure, either as a key and central economic indicator, or else a predictive tool for the more notable non-farm payrolls figure on Friday. I take the first route, primarily due to the notably poor correlation between the ADP and headline payrolls figures. This has been particularly so over the past two releases, where the average differential between the two figures is 107,000 jobs. Given that the two headline announcements came in at 75,000 and 113,000, this means the ADP figure projected job creation at over double the rate in the past two months. This is largely due to the fact that the ADP figure seemed to reflect the job market more positively than the headline rate during a period of adverse weather, which brings us to why the ADP figure is worth keeping an eye on. The decision to taper within the FOMC was a nod to the fact that despite seeing shockingly poor payrolls data, the ADP and unemployment rate figures held up surprisingly well and highlighted a strong underlying jobs market. On this occasion, the ADP was a crucial factor into Fed decision-making and for this reason I believe it is a closely followed barometer that will continue to be highly notable going forward. This month the market forecasts point towards a figure close to 153k, following a strong 175k reading last month. Typically, a over/undershoot of around 15-20k is usually enough to take the attention of the markets.
