- ADP Employment Change is forecast to arrive at 145,000 in August.
- Labor market conditions could influence the Fed’s policy outlook.
- The US Dollar stays resilient against its rivals after posting large losses in August.
The Automatic Data Processing (ADP) Research Institute will release its monthly report on private-sector job creation for August on Thursday. The announcement, known as the ADP Employment Change, is expected to show that the country’s private sector added 145,000 new positions in August following the 122,000 increase recorded in July.
The survey is usually released a couple of days before the official Nonfarm Payrolls (NFP) data (not this month, as it will be released the prior day), and despite random divergences in the outcome, market participants tend to read it as an advanced indicator of the Bureau of Labor Statistics’ (BLS) jobs report.
ADP Jobs Report: Employment and the Federal Reserve
After leaving monetary policy settings unchanged in July, the Federal Reserve (Fed) seemingly shifted its focus toward the labor market, with inflation readings giving enough confidence to policymakers about further progress toward the 2% central bank’s target. In its policy statement, the Fed noted that it is attentive to risks on both sides of its dual mandate, a change from the June statement, in which it said it was ‘highly attentive’ to inflation risks.
While speaking at the Jackson Hole Economic Symposium on August 23, Fed Chairman Jerome Powell acknowledged that the time has come for the monetary policy to adjust. “We will do everything we can to support a strong labor market as we make further progress toward price stability,” Powell said.
According to the CME FedWatch Tool, markets are currently pricing in a nearly 30% probability of the Fed lowering the policy rate by 50 basis points (bps) at the upcoming policy meeting. In case the ADP report suggests that employment in the private sector increased at a stronger pace than forecast in August, market participants could refrain from pricing in a large rate reduction in September. On the other hand, a disappointing ADP print, close to 100,000, could feed into growing fears over cooling conditions in the labor market and allow markets to remain hopeful about a 50 bps rate cut, at least until the BLS publishes the jobs figures for August on Friday.
Economic Indicator
ADP Employment Change
The ADP Employment Change is a gauge of employment in the private sector released by the largest payroll processor in the US, Automatic Data Processing Inc. It measures the change in the number of people privately employed in the US. Generally speaking, a rise in the indicator has positive implications for consumer spending and is stimulative of economic growth. So a high reading is traditionally seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.
Next release: Thu Sep 05, 2024 12:15
Frequency: Monthly
Consensus: 145K
Previous: 122K
Source: ADP Research Institute
When will the ADP Report be released, and how could it affect the USD Index?
ADP will release the Employment Change report on Thursday, September 5. Investors expect an increase of 145,000 in private sector payrolls.
Following the 208,000 increase recorded in March, employment growth in the private sector has been growing at a softening pace, hitting 122,000 in July. In case there is a noticeable rebound in this data, with a reading close to 200,000, the US Dollar (USD) could outperform its major rivals with the immediate reaction. Another disappointing print, however, could have the opposite effect on the USD’s valuation.
Eren Sengezer, European Session Lead Analyst at FXStreet, shares a brief technical outlook for the USD Index (DXY):
“The DXY lost over 2% in August and touched its weakest level since July 2023 near 100.50 on August 27. Although the index managed to stage a rebound from this level, the near-term technical outlook is yet to provide a convincing sign of a reversal of the bearish trend.”
“On the upside, the 20-day Simple Moving Average (SMA) aligns as immediate resistance at 102.00. In case the DXY rises above this level and confirms it as support, technical buyers could show interest. In this scenario, 102.65 (Fibonacci 38.2% retracement of the latest uptrend) could be seen as the next bullish target before 103.30 (Fibonacci 50% retracement). On the flip side, 101.00 (static level) aligns as the first support before 100.50 (end-point of the downtrend) and 100.00 (psychological level).”
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
