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May ADP labor market report missing vital information

Verizon strike not factored in payroll survey

The ADP payroll survey reported an increase in the private sector employment of 173,000 in May, up from the 166,000 increase in April, however the report was missing one important factor-the Verizon strike.

The ADP survey is based on the number of workers on the payroll list, whether they were paid or not, for the firms that use ADP’s payment services. Because of that, it was not affected by the strike of 40,000 Verizon workers.

Even if Verizon was ADP’s client, those workers still would not have been factored in because they are on the official payroll.

In contrast, the official non-farm payroll employment figures only count someone as employed if they were actually paid during the sample period. Because the Verizon workers were on strike for the entire sample period of the official payroll survey, there’s no chance they are included in the employment count.

This isn’t the first time Verizon strikes have skewed the numbers either. Back in August of 2011, 45,000 Verizon workers walked out. That month, the ADP survey showed an increase of 200,000 in employment, whereas the official NFP figured showed an increase of 107,000.

When the official NFP employment figures are released on Friday, the number will be closer to the estimated 120,000 increase, Chief U.S. Economist Paul Ashworth stated. The current estimate of 162,000 is due to forecasters not including the strike.

“Just as importantly, however, a low number will not necessarily affect the chances of a Fed rate hike over the summer because the strike was only a temporary setback,” Ashworth stated. “The workers are already back at work and will boost the gain in employment in June. What the ADP report tells us is that labor market conditions are stable, which is all the reassurance the Fed will need to act soon.”

Brent Nyitray, director of capital markets for iServe Residential Lending, a multi-state residential mortgage banker, says that although the Verizon strike may cause a change from the prediction, there are other factors that he says everyone should focus on.

“Note that tomorrow's payrolls number could be affected by the Verizon strike,” Nyitray wrote to his clients. “Regardless, the number to focus on tomorrow is the change in average hourly earnings.”

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