ADP Misses Expectations but June Revised Higher

Yesterday’s ADP (private payrolls) in the United States brought a new wave of selling on the U.S. dollar. The much-anticipated release offers a preview of the labor market two days ahead of the NFP (Non-Farm Payrolls) on Friday.

This Friday is particularly important due to a recent tweet from President Trump. It hinted at strong jobs data on Friday, something that he should not know at this point in time. In any case, the stock market caught a bid tone ahead of the ADP release and after – in other words, regardless of what the ADP showed, the market rose anyways – and the USD fell.

Revisions Made Up for the Weak Data

The ADP took everyone by surprise. For the month of July, it showed only 167k new jobs when compared with expectations of 1.2 million. Naturally, as normal in the case of weak data from the United States, the USD fell, and the stock market did so too. However, the dip in the stock market was quickly bought, and in a matter of minutes, it came back at the highs. How come?

As it turned out, the revision for June more than made up for the missing ADP jobs in July. So the stocks reversed – but the USD did not. This is a typical summer trading environment when trading algorithms and retail investors push for the same thing.

The good part of this report is that both small and large businesses added new workers for the month of July. However, medium-size businesses lost 25k jobs, offsetting the gains seen at other companies.

Traders should be aware that there is not a direct correlation between the ADP number and the NFP. The methodology of calculating the data differs, and for this reason, the ADP is viewed as a second-tier data.

But this does not change the fact that it offers an insight into the U.S. labor market, and this week the number did not disappoint. In the end, it is the total number of jobs added that matters – and that includes revisions.

Revisions are important for the NFP as well. As it is often the case, the revised data passes unnoticed as the trading algorithms focus on the headline. Therefore, before placing your trades based on interpreting the U.S. labor market, make sure to look at all variables and available data.

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