January Employment Forecast: An Expected Divergence Between ADP and Non-Farm Data

Recent labor market analysis reveals a growing divergence between key employment indicators. According to Continuum Economics, whose senior economist Dave Sloan leads North American forecasts, January employment figures are expected to accentuate this divergence observed over the past few months.

The widening gap between the two data series

ADP data for January are projected at 30,000 job creations, marking a slowdown compared to the 41,000 recorded in December. In contrast, non-farm employment is expected to perform much better with 85,000 new jobs created. This divergence is particularly significant as it represents a 55,000-job gap between the two series.

Historically, this divergence is not an anomaly. According to data reported by Odaily, ADP figures have consistently underperformed compared to non-farm data, with an average deficit of 22,000 jobs over the past six months. Although this gap temporarily narrowed in September and November, analysts anticipate it widening to 50,000 in January, reflecting a trend of divergence between these two indicators.

Contrasting sectoral developments expected

Sectoral outlooks partly explain this forecasted divergence. Non-farm employment is expected to rebound following recent weaknesses in the retail sector, a factor that weighs less on ADP figures. ADP data show expected improvements in goods-producing sectors, notably construction, which should perform better.

Conversely, the services sector may experience a slowdown in growth. The divergence is particularly pronounced in services, with notable gaps between the two data series in the education and health industries. These sectoral variations reflect how the two data collection methodologies capture labor market dynamics differently across sectors.

Implications for market interpretation

This expected divergence between ADP and non-farm data should not be viewed as a statistical malfunction but rather as an illustration of the different methodologies employed. Investors and analysts should consider both series together to gain a comprehensive view of U.S. employment trends, taking into account sector-specific factors that drive this recurring divergence.