UBS comment on the ADP report and how it impacts their expectations for the NFP (spoiler - it doesn't)

In summary:

ADP reported private payrolls up 178k in July, little different from the consensus forecast for private payrolls in Friday's employment report (180k) or our own forecast (165k)

  • Services payrolls continued to rise on trend
  • payrolls for goods-producing industries decelerated sharply
  • some slowing in construction and natural resources
  • decline in factory payrolls

ADP looked consistent with a drag from auto manufacturing payrolls

  • summer shutdowns appear more extensive than usual
  • ADP manufacturing payrolls fell 4k in July versus +17k per month on average in H1

ADP figures support our jobs forecast but aren't so reliable as a m/m signal

  • On average, ADP's initial estimate of private payrolls has overstated the BLS estimate by 50k per month this year, but in June it instead understated by 29k
  • The large errors, and the low probability of guessing when they switch from positive to negative, make ADP fairly unreliable as an indicator for the BLS measure

No change to our forecasts for Friday's jobs report

  • +175k
  • private payrolls up 165k
  • We project slightly softer average hourly earnings growth (+0.1%m/m vs consensus 0.3%)
  • Unemployment rate falling 0.1pt to 4.3% (consensus 4.3%)

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