Payroll giant ADP is partnering with Moody’s Analytics and Moody’s influential chief economist Mark Zandi on producing its monthly ADP National Employment Report.
ADP had previously partnered with Macroeconomic Advisers and its chairman Joel Prakken on producing the monthly reports. They have become a barometer for the jobs market in the private sector and are generally released a few days ahead of the federal government’s official job numbers from the U.S. Bureau of Labor Statistics, providing an early insight into employment trends across the country.
According to an ADP spokesman, the company and Macroeconomic Advisers have “amicably ended their collaboration on the report.”
The partnership with Moody’s promises to expand the number of companies sampled from ADP’s payroll clients 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.
Instead of only providing snapshots of employment activity at small companies with 1 to 49 employees, midsize companies with 50 to 499 employees, and large companies with 500 employees or more, the new report will offer data on five company sizes, from 1 to 19 employees, 20 to 49 employees, 50 to 499 employees, 500 to 999 employees, and 1,000 or more employees.
The enhanced report will also provide an expanded snapshot of the monthly change in nonfarm private sector employment by moving from reporting on three industries (construction, manufacturing and finance) to five industries (construction; financial activities; manufacturing; professional and business services; and trade, transportation and utilities). The five industries constitute more than 50 percent of all U.S. private sector employment.
“It’s a bigger set of companies, and I think that will help improve the estimate,” Zandi said in a phone interview Wednesday with Accounting Today. “The second big methodological change is we’re going to be pulling data every week as opposed to every other week. This allows us to have more timely information and data.”
Zandi believes that ADP’s estimate will be closer to the final estimate produced by the Bureau of Labor Statistics. “The BLS produces an estimate and then revises it subsequently in the following two months,” he explained. “The reason why they have revisions is because only 70 percent of companies report by the time they do the first release. We’re going to be able to pick up most of that, so our number is going to be a closer representation of what’s truly going on in the job market. Then the third big methodological change is that we are expanding the number of industries that are included in the report and the number of size classes that are included in the report. Regarding the size classes, we are going from measuring jobs based on establishments to jobs based on companies. This is a big change and gives us a better sense of what’s going on across big and small companies.”
Zandi noted that his own company, Moody’s Analytics, is part of a much larger multinational company. Under the previous methodology, his job would be counted as part of a small establishment, but in the new ADP data it will be considered part of a big company. “Clearly this is important in terms of the current policy debate, to understand whether policymakers should try to provide help to businesses of different sizes,” he said.
The goal of the ADP National Employment report is to provide a true picture of the employment market, ADP chief strategy officer Jan Siegmund noted. “We derive it from our payroll transactions and it is real time,” he said. “This new partnership with Moody’s, we feel, will allow us to be even more precise and more detailed about this.”
Siegmund noted that the official BLS data is revised a number of times before the final number is reached. “Our goal with the National Employment Report is to reflect what’s going on, and our view is it’s better to compare the ADP National Employment Report to the second revision, or the third print, of the BLS data, because the BLS data is incomplete and then changes over time,” he said. “It’s a different angle that we’re trying to get.”
Siegmund noted that ADP’s sample of payroll clients includes more than 300,000 small businesses, many of which use accountants. ADP is going to continue to publish a special section of its National Employment Report on small businesses, he added. There will also be a separate breakout for the financial services sector, he added. “You will see that the precision with what we are able to predict, with the second revision of the BLS numbers or the third print, has really significantly improved,” said Siegmund. “As Mark described, more companies are being included in the sample set, but also being smarter about the economic modeling of how to create the index. That is our goal, to improve the quality of the reports. Past performance is no guarantee, as you know, but that is our hope, that we’re going to be more precise going forward.”
Zandi plans to use the data he will have access to from ADP for the analysis he does for Moody’s. “I’m very excited to learn more about what’s going on in the job market, and in regard to human capital more broadly, because of our partnership with ADP,” he said. “I think this is the first step towards getting a better understanding of all kinds of human resources questions, regarding wages and hiring patterns and benefits and health care issues. I’m like a kid in a candy store.”
Of the overall job market, Zandi believes it’s been remarkably stable over the past couple of years, but he is concerned about the uncertainty of the fiscal cliff. At the end of the year, the combination of the expiration of the current tax rates and the requirement in last year’s budget deficit deal for deep spending cuts could have a negative impact on hiring.
“If you look through the monthly ups and downs in the data, we’ve been producing 150,000 jobs on average, some months a little more, some months a little less, but it’s been incredibly stable,” said Zandi. “Unfortunately that’s not enough to really bring down unemployment in a meaningful way, at least not quickly. And we have an unemployment rate that’s close to 8 percent. That’s why we’re all so very uncomfortable. At least, I don’t yet see any significant acceleration. To be frank, I’m nervous over the next few months, into next year, given all the fiscal issues that we’re going to have to address soon after the election. That could be a weight on the job market.”
Hiring still appears to be weak across many industries, he noted. “That would suggest that something broader is going on here,” he said. “Something like the fiscal cliff is playing on hiring patterns.”