Private-sector payrolls expanded by 198,000 in February, according to today's ADP Employment Report. That's down a bit from January's 215,000 advance. Nonetheless, February's increase is strong enough to inspire confidence for expecting that Friday's Labor Department report on payrolls will also profile February as another month of modest growth for jobs creation.
"The job market remains sturdy in the face of significant fiscal headwinds," says Mark Zandi, chief economist of Moody's Analytics, in the accompanying ADP press release. "Businesses are adding to payrolls more strongly at the start of 2013 with gains across all industries and business sizes. Tax increases and government spending cuts don’t appear to be affecting the job market."
From an econometric perspective, today's ADP report looks encouraging for expecting Friday's government update will show that private payrolls in February matched or exceeded January's 166,000 rise. In each of the three months through January, the ADP estimate exceeded its Labor Department counterpart. That implies that Friday's data will move closer to the ADP's February number.
The reasoning is that the two series are closely correlated over time, with the monthly changes posting an R-squared of 0.91 since 2001, the earliest estimates for the ADP data. In the short term, however, divergences are common. But the long-term history of the two data sets suggest that any divergences will be temporary. As such, the recent divergence looks overdue for a round of narrowing. Translated: Friday's private-sector payrolls estimate looks likely to meet or exceed the January pace.