Nonfarm payroll employment is a key indicator of the labor market, as it represents the total number of paid U.S. workers excluding the farming industry. Usually, when people hear “nonfarm payrolls”, they think about the number provided by the U.S. Bureau of Labor Statistics in the Employment Situation Report published on the first Friday of each month.
However, two days prior to the government’s publication, the ADP National Employment Report is published. It is published monthly by the ADP Research Institute in close collaboration with Moody’s Analytics, providing a snapshot of U.S. nonfarm private sector employment based on actual transactional payroll data.
As the ADP Employment report is published two days earlier that the government’s data, investors consider it as an useful preview of the condition of the labor market. Another important differences between these two data series is that the ADP report includes only jobs created by the private sector, while the BLS’ release takes the government employees into account as well.
But the most important difference is that the ADP is based on transactional payroll data and not just survey data. Thanks to this feature, the ADP numbers are more accurate than the initial version of the BLS report which is then subject to several revisions.
ADP Employment and Gold
What is the relationship between the ADP’s private nonfarm payrolls and the shiny metal? Let’s analyze the chart below to figure it out.
Chart 1: ADP private nonfarm payrolls (red line, left axis, monthly change in thousands of persons), BLS total nonfarm payrolls (blue line, left axis, monthly change in thousands of persons) and the price of gold (yellow line, right axis, London P.M. fixing) from May 2002 to March 2019.
As the chart above shows, there BLS and ADP’s data are highly correlated. But there is no clear long-term relationship between the gold price and non-farm payrolls, neither total nor private.
However, if the employment statistics surprise investors, the ADP report may move the price of gold in the short-term. Usually, when the payrolls are stronger than expected, it signals that the US economy is in a good shape, and the Fed has more room to tighten its monetary policy, which is bearish for the gold prices. Conversely, when the ADP falls short of expectations, the markets start to worry and shift more funds into the safe havens, such as gold. Having said that, investors should be aware that markets are much more sensitive to the releases of the BLS’ reports, which are considered to be more detailed and comprehensive.