US ADP rises 172K from 168K in June: Little directional steer for markets - ING

Rob Carnell, Chief International Economist at ING, notes that the 172K rise in the June ADP survey is insignificantly higher than the revised 168K figure for May, when it spectacularly failed to predict the 38K payrolls shocker.

Key Quotes

“With very little difference in the June ADP from the May figure, we are left none the wiser about the likely direction of tomorrow's non-farm payrolls release and other labour data. At a minimum, we can expect that if the underlying trend has not shifted, then the payrolls headline should rise by about 30K to 70K, to reflect the return of striking workers that helped undermine the May figure.

But our sense from the other labour data is that the underlying picture in the labour market remains much stronger than the recent payrolls headlines have suggested, and this could see a figure well in excess of the payrolls consensus of 180K (ING f +200K), combined perhaps with a further pick up in the rate of wages growth. Indeed, there is a risk that we are also too conservative with our forecasts.

With fixed income markets overly gloomy post-Brexit, and economic forecasts similarly downbeat, this could lead to a re-think on the Federal Reserve, which markets expect will be on hold for about the next 18 months. While we would agree that there is no rush at the Fed to tighten again, the backdrop of the US economy is simply not that bad, and more data like this is, in time, going to require a market re-think. This could be particularly evident at the front end of the yield curve.”