ADP Employment Report Is Undependable

 |  Includes: SPY
by: Neal Razi

Last Wednesday's ADP employment report caused quite a stir, reporting a measly estimated 38,000 jobs gained for the month of May. This in part caused the S&P 500 (NYSEARCA:SPY) to drop almost 2.5% on the day, as the strength of the US economic recovery is called into question. However, before you jump to conclusions or go buying 10 year Treasury Bonds at <3% yield, please take a second look at the usefulness of this report.

To call the initial, unrevised data from this report "inaccurate" is an understatement, and may be akin to calling a root canal "uncomfortable." Wildly inaccurate might do it justice.

I ran some data up to last May 2010 on ADP. Please take a look.

These numbers are in thousands, and since I don't have the revised BLS numbers for April, I just went ahead and re-used the unrevised number. Generally, the BLS revisions are not very large.

Date ADP Unrevised ADP Revised BLS Private BLS Private Revised High/Low Difference Between ADP Unrevised Versus BLS Revised
May 2011 38
April 2011 179 177 268 268 Low 89
March 2011 201 207 230 231 Low 30
Feb 2011 217 208 222 240 Low 23
Jan 2011 187 189 50 68 High 119
Dec 2010 297 247 113 139 High 158
Nov 2010 93 92 50 79 High 14
Oct 2010 43 82 159 160 Low 117
Sep 2010 -39 -2 64 107 Low 146
Aug 2010 -10 10 67 93 Low 103
Jul 2010 42 37 71 107 Low 65
Jun 2010 13 19 83 31 Low 18
May 2010 55 57 41 33 High 22
Click to enlarge

You'll see that there are huge errors in the ADP Unrevised Data when compared to the actual private jobs numbers as reported by the Bureau of Labor Statistics. This is often 100s of thousands of jobs, which is very significant.

For those who believe that perhaps the data is rigged by the BLS to present a rosier outlook, you'll also notice that that ADP is frequently high as well as low.

Also, you'll see that, unlike the BLS, there are some very large revisions on ADP's part, occasionally 40-50,000 jobs.

While occasionally close, this report is highly inaccurate statistically. I would recommend waiting to see the actual statistics Friday before making any moves in your investments. Additionally, I'd recommend in the future that you remain skeptical of this report.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.