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ADP predicts strongest jobs increase since June

Strong gains in construction employment

The ADP National Employment Report predicts strong growth for January with the highest increase since June 2016.

Private-sector employment is set to increase by 246,000 from December to January on a seasonally adjusted basis, according to the report. This is significantly above December’s increase of 156,000 jobs.

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ADP Employment

(Source: ADP)

The boost was heavily driven by an increase in construction employment; a welcome relief to the supply-starved housing market.

The goods-producing sector added about 46,000 jobs with increases in these areas:

National resources and mining: Increased 6,000

Construction: Increased 25,000

Manufacturing: Increased 15,000

The service-providing sector added about 201,000 jobs with increases in these areas:

Trade, Transportation and Utilities: Increased 63,000

Information: Decreased 6,000

Financial activities: Remained flat

Professional and business: Increased 71,000

Education and health: Increased 47,000

Leisure and hospitality: Increased 17,000

Other services: Increased 9,000

However, it’s important to remember ADP has a hit or miss record when it comes to predicting the jobs report numbers.

“The Street is looking for a 175k nonfarm payrolls in Friday's report,” Brent Nyitray, iServe Residential Lending director of capital markets wrote in his note to clients. “The ADP number hasn't been a great predictor of the BLS number for a while, so don't read too much into it.”

And January could be an even harder month to predict, give the methodology of the report.

“In past years, January has proved to be a particularly problematic month because of the methodology used in the ADP survey,” Capital Economics Chief Economist Paul Ashworth said. “That survey simply counts the number of people on the payroll, regardless of whether they are paid or not.”

“The issue is that some firms keep job leavers dormant on the payroll for the remainder of each year and then purge everyone who hasn’t actually worked or been paid for several months at the start of the next year,” Ashworth said.

What about today’s Federal Open Market Committee? All signs indicate that this growth, while significant, will not influence the meeting’s decision.

“While strong, this number will probably not change anything with respect to this afternoon's Fed decision, which comes out at 2:00 pm EST,” Nyitray said.

And that is exactly what happened.

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