Last week, we awarded the Wonky for most overrated economic statistic to the government’s monthly jobs numbers, which are prone to considerable error and tend to get way more hype upon release than they deserve. However, an alternative metric — the ADP employment figure — is, if anything, underrated. Collected by the payroll processing firm ADP, the report has offered a more accurate first guess of the actual, final job numbers during the current economic crisis than has the Bureau of Labor Statistics’ initial release for the month. ADP has since switched its methodology a bit, but it’s definitely worth paying attention to.
The ADP figures for December came out Thursday morning and are rather encouraging. ADP estimates that we gained 215,000 jobs in December, far outpacing any recent months’ gains, and it also revised its November number from 118,000 jobs added to 148,000.
Today is a better day than most to post a reminder of how the two dominant sources of jobs data, the Bureau of Labor Statistics and payroll provider ADP, arrive at their predictions.
Each month, BLS collects data on employment, payroll, and paid hours from a sample of establishments. To encourage participation in this voluntary survey, BLS uses a variety of collection techniques, tailored to individual firm preferences. Data collection centers perform initial enrollment of each firm via telephone, collect the data for several months via Computer Assisted Telephone Interviewing and where possible transfer respondents to a self-reporting mode such as touch-tone data entry, fax, or Internet collection. Very large, multi-establishment firms’ ongoing reporting is established via electronic data interchange. These firms provide electronic files to BLS that include data from all their worksites.
The ADP report (.pdf) begins with an analysis of payroll data. Specifically:
[T]he sample size of the ADP data set from which the newly enhanced ADP National Employment Report is derived has been expanded from 344,000 U.S. companies to 406,000, and from 21 million employees to 23 million, which accounts for more than 20 percent of all U.S. private sector employees.
First off, that’s an enormous data set. But the ADP report, as of Nov. 1, has the additional benefit of taking external statistics into account as well. Its forecasts use BLS employment data as well as another predictive index — something called the Philadelphia Federal Reserve Bank’s Aruoba-Diebold-Scotti Business Conditions Index.
Because the addition of relevant information usually produces more-accurate predictions, you can see the playing field is already uneven: the ADP forecasts use the BLS statistics, but the BLS doesn’t use the ADP figures.
It is also likely that both indexes predict employment movements in certain sectors better than others. ADP’s methodology, for instance, seems equipped to predict movements in small-business employment quicker than does the BLS, meaning its predictions for service-sector employment may be especially worthy of attention for anyone who has an appetite for the granular details.
Both reports produce useful data that are worthy of both consideration and scrutiny. But, if given the choice between one or the other, the ADP forecast is more trustworthy.
“Although I know a dozen billionaires and over a hundred millionaires, I never once heard one express the idea ‘I was going to start a business, but with the marginal tax rate at 39% instead of 35%, I guess I won’t.’ Rather, every entrepreneur I know is interested in whether their venture will have a 1000% return or a 10,000% return — the tax rate is irrelevant. I think Obama’s policies fit the world as I see it: we need small businesses and consumers to grow together. Obama is concentrated on helping them; Romney seems to concentrate on making the rich richer.”
Fun fact: From 1977 to 2005, literally all net job creation in the U.S. happened at businesses younger than one year, what we call start-ups.
My company has some extra money, so I’ll hire new workers to sit around and twiddle their thumbs.
Transportation isn’t one of those issues on the forefront of people’s minds. There’s no campaign fodder, nothing sexy about it.
NPR requested help from numerous Republican congressional offices, including House and Senate leadership. They were unable to produce a single millionaire job creator for us to interview.
So we went to the business groups that have been lobbying against the surtax. Again, three days after putting in a request, none of them was able to find someone for us to talk to.
I never thought of what I do for a living as job creation. … The primary goal of private equity is to create wealth for your investors.
I’m no economist, but… It seems that the sole reason for a business to hire is because of demand for the product or service that business provides. If you own a widget factory, how does a tax cut on your widget profits spur job creation when nobody is buying widgets to begin with? Wouldn’t it be better to put more money in the hands of widget consumers? Maybe some incentives for widget usage?
At my job, when the boss gets a tax break, he doesn’t say “Oh! Now I can give my employees a bonus or a raise! Or hire someone to stand around, just to help them out with a job”; he says “Honey, let’s go to Paris for 10 days, and take the kids!”