Ben Bernanke didn't have to whisper something at a July Fourth barbecue to let the markets know they overreacted last week. The ADP National Employment Report sent that message for him Wednesday.Finally on the map after launching three months ago, the ADP employment report, which measures private sector employment, showed a whopping 368,000 increase in new jobs in June. The report was launched in May and comprises ADP's collection of payroll data, excluding changes in government employment payrolls. The report has not moved the market until now. But after logging sharp gains since the Federal Reserve meeting last Thursday, the markets recoiled Wednesday as hopes for a Fed pause faded. The data surprised Wall Street as economists re-evaluated their calls for a much more muted nonfarm payrolls report Friday and inflation fears roared again. The Wall Street consensus estimate is that the June nonfarm payrolls report would show 160,000 new jobs. The ADP report "is a surprise
Couden says investors were looking for a reason to take profits after Monday's rally, spurred by
economic data suggesting the economy was slowing and that the Fed could pause. Notably, the ISM's manufacturing index showed slowing overall growth in the manufacturing sector, and weak employment growth to boot. Wednesday's stronger-than-expected report on factory orders canceled out that news, he says. The Census Bureau reported factory orders rose 0.7% in May, much higher than the 0.1% estimated increase. The Treasury market sold off in reaction to the data as well. The 10-year and two-year bond yields rose about seven basis points each to yield 5.22% and 5.23%, respectively. The dollar gained 0.51% against the yen to 115.71 yen, while the euro fell 0.34% to $1.2732. In other markets, oil closed at a record high of $75.19 per barrel, up 1.7%. Gold rallied in a flight-to-safety trade after news of North Korea's missile-testing. It gained 1.7% to close at $630 per ounce.
The ADP report's caused markets to finally take stock of the three-month old data point, published by Automatic Data Processing ( ADP) and Macroeconomic Advisers LLC. "You're talking about a blowout employment report," says Harris, adding that he increased his forecast for nonfarm payrolls to 200,000 from 175,000 in the wake of the ADP report. Harris added that employment forecasting is exceptionally difficult, and that even a 0.01% error means 100,000 jobs. Harris wasn't the only economist to change his forecast. Goldman Sachs adjusted its forecast to 250,000 jobs from 150,000, and Deutsche Bank adjusted its forecast to 200,000 from 100,000. The ADP report's recent track record reveals a tendency to overshoot, but only slightly. The report showed a gain of 178,000 new jobs in April, and nonfarm payrolls showed 138,000 new jobs. For May, ADP showed 122,000 new jobs, while the nonfarm payrolls report showed only 75,000 new jobs. This time around, June's number is not just an exaggeration, it is off the charts. ADP generated a history of monthly jobs reports when it launched in May, which reveal a checkered past in tracking with extremes in the nonfarm payrolls report. ADP showed a 362,000 gain in November 2005, when nonfarm payrolls showed a surge of 326,000 jobs, writes David Rosenberg, economist at Merrill Lynch, adding that ADP has never missed by more than 200,000. But ADP showed a decline of 518,000 jobs in October 2001, when the nonfarm payrolls report showed a 363,000 decline, he adds. Rosenberg did not change his forecast of 165,000 for Friday's payrolls report, writing that it's hard to imagine that companies went on a hiring spree in June. Maybe so, but the reaction to such an unproven, relatively new piece of data Wednesday shows that the market's trigger finger is right atop the red "sell" button and the Fed's dovish statement can be easily forgotten.