Text size

Private-sector companies in December added the most jobs in eight months, bolstering sentiment that the labor market remains solid.

Payroll processor ADP said non-government payrolls rose 202,000 in December, well above the 160,000 economists surveyed by Bloomberg had expected. It’s the best reading since last April, and it comes along with a significant upward revision to a weak November figure (November private payrolls were 124,000, ADP said Wednesday, up from an initially reported 67,000).

Stocks were slightly higher Wednesday, in part due to hopes that the U.S. tension with Iran is de-escalating. The S&P 500 gained 10 points and the Dow Jones Industrial Average rose 25 points in morning trading.

Many traders and analysts value the ADP report as the last big clue ahead of the Labor Department’s employment situation report, which comes this Friday.

It’s wise not to make too much of the ADP measure, however, as a predictive gauge. ADP doesn’t seek to replicate the Labor Department’s methodology, and the samples aren’t the same. ADP includes certain macro factors in its model, meaning it’s not simply a survey of its clients’ payrolls. At the same time, revisions can be large—as was the case with November’s reading.

“Bottom line and ahead of Friday’s payroll number, there are certainly some months where ADP’s print is on Venus and the BLS is on Mars but over time they converge,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group in Fairfield, N.J.

To that point, the average difference over 2019 between where ADP and nonfarm payrolls printed (not considering later revisions) was 71,000. In most cases, ADP undershot the Labor Department.

As for this Friday’s employment report, economists expect an increase in nonfarm payrolls of 160,000. That would be a much smaller gain than the blowout 266,000 in November, though it would still represent a steady job market.

Mark Zandi, chief economist at Moody’s Analytics, which compiles the ADP data, said as much on Wednesday. “Looking through the monthly vagaries of the data, job gains continue to moderate,” he said, adding that manufacturers, energy producers and small companies have been shedding jobs. Larger, service-providing companies such as those selling professional services have offset weakness in the areas Zandi highlights.

Write to Lisa Beilfuss at lisa.beilfuss@barrons.com