ADP: US Employment Growth Rebounded Sharply In January

Is the labor market re-accelerating? It’s easier to make that case after reading today’s January update of the ADP Employment Report.

US companies added significantly more jobs last month — 246,000 — than expected. The strong rise marks the biggest monthly increase since last June, providing support for expecting a solid advance in Friday’s official employment report for January from the Labor Dept.

“The US labor market is hitting on all cylinders and we saw small and midsized businesses perform exceptionally well,” says Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Further analysis shows that services gains have rebounded from their tepid December pace, adding 201,000 jobs. The goods producers added 46,000 jobs, which is the strongest job growth that sector has seen in the last two years.”

The latest pop lifted the year-over-year increase for ADP’s employment estimate to 1.80%. Note, however, that a 1.80% annual increase still represents growth that’s near the softest pace in nearly four years.

The question is whether today’s results signal a reversal in the slowdown in employment growth that’s been unfolding over the last two years? It’s too soon to know. One month doesn’t tell us much, in part because short-term noise is a constant pest. The improvement in the one-year change is encouraging, but it’s not obvious that the slow fade in job growth has ended, much less reversed.

We’ll know more in Friday’s release from the government. Meanwhile, the implied forecast via the ADP paints a rosy picture for the official January update. Crunching the numbers with a linear regression model translates into a projected rise of 242,000 in private-sector payrolls for last month – dramatically higher than the 170,000 consensus forecast via Econoday.com.