ADP Employment Change Preview: US private sector expected to add 148K new jobs
- The ADP survey is expected to show the private sector added 148K new positions in March.
- The Federal Reserve has made it clear that policymakers are in no rush to cut interest rates.
- The US Dollar trades with a firmer tone in a risk-averse environment.
The United States (US) Automatic Data Processing (ADP) Research Institute will release the private employment data for March on Wednesday. The survey provides information about job creation in the private sector and it is usually released two days before the official jobs report of the Bureau of Labor Statistics (BLS), which features Nonfarm Payrolls (NFP) data.
According to market analysts, the ADP survey is expected to show 148K new positions were added in March, slightly above the 140K reported in February. However, previous readings are always subject to revisions, and a solid ADP survey hardly means an in-line NFP report, as the correlation between the two reports has been sporadic, to say the least.
Still, the relevance of the ADP survey is enhanced by the fact the US releases multiple employment-related data in the days previous to the NFP publication. All combined help market participants find clues on what the Federal Reserve (Fed) may do next with monetary policy.
Fed Chairman Jerome Powell has multiple times explained a tight labor market weighs against the case of lower interest rates, as it risks lifting inflationary pressures through wage increases. As of lately, American policymakers are less concerned about the employment situation, although they seem comfortable where they are.
Powell participated in a discussion at the Macroeconomics and Monetary Policy Conference in San Francisco on Friday. He said the economy is strong and that policymakers are not in a hurry to cut rates. He repeated that they want to be more confident before doing so. According to the CME FedWatch Tool, the odds for a June rate cut are roughly 56%, following Powell’s comments and data indicating that the core Personal Consumption Expenditures (PCE) inflation remained steady at 2.8% YoY in February.
The ADP survey also offers pay data. In February, the report showed that “pay gains for job-changers accelerated for the first time in more than a year, rising to 7.6% from 7.2%.”
Nela Richardson, ADP Chief Economist, noted: “Job gains remain solid. Pay gains are trending lower but are still above inflation. In short, the labor market is dynamic but doesn't tip the scales in terms of a Fed rate decision this year.”
With that in mind, another solid report will likely further undermine the odds of a rate cut in June and put financial markets in risk-off mode.
When will the ADP Jobs Survey will be released and how could it affect EUR/USD?
The ADP survey on job creation will be out on Wednesday and is expected to report the private sector added 148K new positions in March. If the headline reading widely surpasses the estimate, it could be understood as a stubbornly strong labor market. Combined with higher wages, the news will likely boost demand for the USD. The opposite scenario, weak job creation alongside easing wages, should push the Greenback into negative ground amid a better sentiment.
From a technical perspective, Valeria Bednarik, Chief Analyst at FXStreet, notes: “The Dollar Index (DXY) flirts with 105.00 ahead of the announcement, after hitting 105.10 on Tuesday, a fresh 2024 high. The bullish momentum, however, is missing in the daily chart, despite the overall picture favors an upward continuation. The DXY develops above its moving averages, although the 100 and 200 Simple Moving Averages (SMAs) lack directional strength. Only the 20 SMA seems to be giving signs of life, grinding marginally higher and poised to cross above the 100 SMA. Meanwhile, technical indicators remain within positive levels, although without clear directional strength.”
Bednarik adds: “Beyond the 105.20 region, the DXY has little to deal with until 105.50. A daily close above the latter should confirm the bullish case and pave the way for a test of the 106.00-106.10 price zone. On the other hand, immediate support is located at 104.70, followed by 104.25.”
Economic Indicator
United States ADP Employment Change
The ADP Employment Change is a gauge of employment in the private sector released by the largest payroll processor in the US, Automatic Data Processing Inc. It measures the change in the number of people privately employed in the US. Generally speaking, a rise in the indicator has positive implications for consumer spending and is stimulative of economic growth. So a high reading is traditionally seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.
Read more.Next release: 04/03/2024 12:15:00 GMT
Frequency: Monthly
Source: ADP Research Institute
Why it matters to traders
Traders often consider employment figures from ADP, America’s largest payrolls provider, report as the harbinger of the Bureau of Labor Statistics release on Nonfarm Payrolls (usually published two days later), because of the correlation between the two. The overlaying of both series is quite high, but on individual months, the discrepancy can be substantial. Another reason FX traders follow this report is the same as with the NFP – a persistent vigorous growth in employment figures increases inflationary pressures, and with it, the likelihood that the Fed will raise interest rates. Actual figures beating consensus tend to be USD bullish.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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