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ADP's Tweaked Payrolls Reports More Accurate, but Still Far From Perfect

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The ADP rolled out a new methodology for calculating payrolls last October. How effective has it been?

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MINYANVILLE ORIGINAL Yesterday morning, the ADP Institute released its monthly private payrolls report, showing a monthly gain of 215,000 while last month's report was revised higher to 148,000 from 118,000. This was well ahead of the average economist estimate of 140,000 and the highest economist estimate of 210,000. Shortly after this release, Goldman Sachs strategists upgraded their nonfarm payrolls estimate to 200,000 from 175,000, nudging up the Street estimate.

This morning, the Bureau of Labor Statistics' report of nonfarm private payrolls saw a decline to 168,000 from last month's revised higher 171,000 and slightly ahead of the 155,000 estimates. The nonfarm payrolls report saw a slight decline to 155,000 from last month's revised higher 161,000.

It is worth noting that a little over two months ago, ADP began cooperating with Moody's Analytics to provide a more accurate payrolls report. With the new methodology, Moody's and ADP claim that the private payrolls report will carry a 96% correlation to the Bureau of Labor Statistics' monthly nonfarm private payrolls report.

The ADP also expanded its sample size of individuals and businesses for the new methodology. The amount of companies surveyed was expanded to 406,000 from 344,000 and the number of employees grew to 23 million from 21 million. You can see a further mathematical breakdown of the new report here. Comparatively, the BLS only surveys 141,000 businesses and government agencies.

In the past, the ADP report was viewed with some skepticism due to its wild inaccuracies during some months. But with these enhancements, the ADP report has become more reliable. Let's take a look at the data over the past few months:



With the revised numbers, this indicates an average difference between the ADP report and BLS report of 38,000 payrolls using the new methodology. Before this change, from January 2001 to September 2012, the average difference between the ADP report and BLS report was 56,446. So for now, the new methodology is more effective for estimating payroll gains in the US. But to me, it is still unclear which report we should be looking at to give us the clearest picture of the US economy.

Twitter: @MichaelSedacca

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