Focus on ADP employment for the right reasons

The US will release it’s March ADP employment report today at 12:15 GMT.

ADP is usually released ahead of the NFP jobs report.

But it’s important to note that ADP has a very bad track record for predicting NFP (as seen below).

In recent months, we’ve seen unpredictable volatility out of the ADP releases.

With not even massive deviations being enough to create any meaningful or sustainable market impact.

So, if it doesn’t predict NFP, and if it hasn’t been particularly tradable, why should traders pay attention to it?

We pay attention to it because it can impact market expectations for NFP. Remember that NFP estimates are usually submitted the prior week’s Friday.

But in the run up to NFP, we get data points that feeds into the jobs report, such as:

• ISM Manufacturing employment index
• ISM Services employment index
• ADP national employment
• Challenger layoffs

If all of these reports show meaningful upside or downside surprises, that can change market expectations for NFP.

Which means even though the consensus forecast for Friday’s NFP is 200K, that number might be seen as too low or too high by markets depending on the data we get in the run up to NFP.

This article was written by Arno V Venter at www.forexlive.com.