By Ian McKendry

WASHINGTON (MNI) – Unexpected data Wednesday morning sent
economists scrambling to revise up their December nonfarm payrolls
forecasts, citing strength that can’t be ignored in the December ADP
report despite mixed signals coming from other data.

“The truth is, we just couldn’t ignore the strength of this ADP
report,” Tom Porcelli, RBC’s chief U.S. economist told Market News
International Wednesday.

“Having said that, we are obviously not using all of the strength
suggested in ADP, and the reason is, it is obviously playing some
catch-up,” Porcelli said.

Economists pointed to ADP’s “sketchy” record in predicting the
Bureau of Labor Statistics nonfarm payrolls which will be released
Friday morning.

ADP has undershot the BLS’s private payrolls number by an
average of 71,000 through the first 11 months of the year, HSBC’s U.S.
economist Ryan Wang noted.

Wang also pointed out that as a level, ADP’s payroll number has
grown by 386,000 in 2010 compared to the 1.2 million private payrolls
BLS has reported.

“In levels terms it is way below the level of private payrolls so
we are not willing to let the full strength of this report show
through,” Porcelli said, adding that RBC revised their private payrolls
forecast from 130,000 to 205,000

Mike Englund, chief economist at Action Economics, told MNI he also
revised up his private payrolls forecast from 150,000 to 180,000 saying
the discrepancy from Action Economics service sector employment forecast
and what ADP reported was outsized.

“There does seem to be an updraft in the economic data in December,
although there may be a bit of a frenzy forming in the market and focus
on upside risk for Fridays numbers,” Englund said.

“The headline numbers all generally rose to levels similar to what
we saw in the second quarter but the employment numbers were nearly all
weak, falling in December, so there is hardly a monolithic tone of
improvement,” Englund added. He was referring to the Chicago PMI, ISM
manufacturing and non-manufacturing, Philadelphia Fed and one of the
Empire reports all had weaker employment numbers in December.

Englund also noted that the market may want to look to the November
and October payrolls numbers, which will be revised Friday.

Englund said he is estimating a 50,000 to 100,000 revision to
Novembers number, “to bring it back to trend.”

Jim O’Sullivan, chief economist at MF Global also thinks November’s
payrolls number will be revised, noting that it will be revised again
February.

“There has been a pattern recently where first prints tend to get
revised higher, later, and we wouldn’t be surprised to see some upward
revision to the November number which looks like an aberration,”
O’Sullivan said.

“Payrolls on first prints have if anything been undercounted
recently so that is something to keep in mind when we get the December
number,” O’Sullivan added.

O’Sullivan also noted that the BLS will update the seasonal
factors for the labor force survey, which he said he believes will
revise away one tenth of the two tenths increase in the unemployment
rate in November.

O’Sullivan also said in a research note that this month’s BLS
survey was done the week of December 18, too early to be affected by the
Northeast snowstorm. But Englund said he thought December had pretty bad
weather throughout which he said might take 10,000 to 20,000 jobs off
the headline number.

The BLS Employment Report will be released at 8:30 a.m ET on Friday
January 7.

** Market News International Washington Bureau: 202-371-2121 **

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