A closely watched report often criticized for sending out
misleading signals about the state of the labor market is
undergoing a major overhaul.
On Wednesday, payroll processing giant ADP announced that it was
shifting from Macroeconomic Advisers to Moody's Analytics as its
partner to compile its monthly report on the state of
private-sector hiring. The new methodology kicks in with the
release of the next report on October hiring activity, due on Nov.
1.
As it was since the report's beginning in 2006, the ADP release
will aim to get to the actual state of the private labor market.
The monthly government payroll data tends to undergo significant
revisions that can often leave the state of the labor market
looking notably different in its final version from how it was
first reported.
The ADP data is intended to reveal where the government data is
heading when finalized. But financial markets often looked to the
report as an immediate proxy for the government report. The
frequent disconnect between ADP and the first reporting of
government numbers has drawn steady criticism from market
participants.
The ADP report "has performed quite well over the last six
years" given what it was intended to capture, said Jan Siegmund,
chief strategy officer with ADP. He said his company's relationship
with Macroeconomic Advisers ended "very amicably" and "we have no
bad feelings' about the company.
In changing horses, Mr. Siegmund said Moody's is "a very good
match for our expectations."
The improved ADP report also hopes to reveal where a given
monthly job count will be revised to, and to that end, it is
employing a broader set of measurements. Mark Zandi, chief
economist of Moody's Analytics, said the report aims to be closest
to the "truth" of where the labor market is in a given month.
Mr. Zandi said the report now looks at five business class sizes
instead of three, and measures hiring at a company level. ADP noted
it will now sample 406,000 companies, from 344,000, with employees
accounting for more than 20% of the private sector labor force. The
company claims the new methodology shows a 96% correlation with
revised government data going back to 2001.
As it was before, the monthly ADP job count is not necessarily
trying to catch the first print of jobs data from the Bureau of
Labor Statistics. That could open the report up to the same charges
the report is giving a misleading picture on job growth.
Mr. Zandi said "I'm hopeful market participants will be able to
look through the initial number" and through "learning by
experience" they will see the insight the ADP report is trying to
provide.
Macroeconomic Advisers was not available to comment on the
changes.
Write to Michael S. Derby at Michael.derby@dowjones.com
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