ADP reported a decrease of 250,000 jobs on private-sector payrolls, much more than the consensus forecast for a decrease of 205,000. It is important to note that ADP has been reporting fewer job losses than the Bureau of Labor Statistics has in recent months. From January through October, ADP reported job losses averaging 39,000 a month, 79,000 fewer than the monthly losses reported thus far by the BLS. Over the past five months, the miss was about 120,000.

These data will help further prepare the financial markets for the possibility of a weak jobs report on Friday. Amazingly, the consensus is for a decrease of 325,000, a vast change from a few months ago when expectations generally were for monthly decreases of about 75,000 per month. This clearly shows that the preparedness for Friday's data is unusually high.

Market participants will likely add -100,000 to ADP's estimate, which at -350,000 would put the payroll loss at its widest since May 1980, when payrolls fell 431,000. The largest decline since then was 343,000 in July 1982, which was a month before the start of a long-winded bull market in equities.

I said months ago that the economy was set to enter a dark period marked by deteriorating employment conditions, and market prices have been reset accordingly since then. The next step for the markets is to determine the depth and duration of the economic downturn. Once this happens, investors in riskier assets such as equities and corporate bonds will look over the valley and ignore bad news, and riskier assets will post sustainable rallies. Not now, but the time will be at hand when the deterioration in the economy ebbs. Data need not get better to spark a rally; they need only stop getting worse.

Risk assets such as equities and corporate bonds have tended historically to begin recovering in the middle of recessions, which to some would make the current period seem a safe time to begin buying, but the depth and the duration of the current recession remains overly unclear. This will delay a meaningful recovery in risk assets.

There will be times when all the bad news that remains is already priced in. Over the past month, for example, economic news has been beyond dreadful, yet risk assets have not moved much, although they remain in very poor condition. The behavior of the financial markets in the face of such bad news is therefore a sign that the degree of preparedness for bad news is high. Nevertheless, the extraordinary conditions surrounding the current recession require more caution than usual, and it will not be safe to sound the all clear until the depth and duration of the recession becomes more obvious than it is now.

The divergence between data from ADP and the BLS might reflect the fact that many large firms, including large financial services firms, use their own payroll services. Divergences between ADP and BLS data could occur because ADP is capturing trends not yet picked up by the BLS but which will be captured in benchmark revisions to the BLS data. This seems less likely to be the case in the current situation, as both ADP and the BLS are likely overestimating the job count, mainly because the assumptions being made for the net amount of business formation have not caught up to the cyclical downturn. In other words, the jobs tallies have been kept higher than they would otherwise be because ADP and the BLS continue to adjust their data for supposed increases in jobs in industries that are currently shrinking -- in particular the construction sector, which is undoubtedly shrinking.

Whether ADP and the government are capturing the true state of the job market is an open question. It is likely that both are overstating the actual job count, with both assuming too great an increase in net business formation. This will become evident when preliminary estimates for the annual benchmark revision through March 2008 are released. The miss is likely to be close to 500,000 for the 12 months ended March 2008.

Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic,

The Money Market

, first published in 1978 by Marcia Stigum, and

The Strategic Bond Investor

. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback;

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