Forex Factory report shows that ADP private employment data for November, which will be released at 9.15pm tonight (Wednesday), is expected to decline significantly, with a forecast of only 5,000 compared to 42,000 in October.
This means that the forecast for November shows a drop of about 88% compared to the previous month, which is a decline that is considered unusually large.
However, the ADP reading can indeed fall significantly because this report only measures private employment in a sample of companies that use the ADP payroll system.
If in a given month many large companies stop hiring, reduce working hours or make temporary layoffs, the ADP figure can easily decline even if the actual economic situation is not that bad.
This situation occurs more often towards the end of the year when employers begin to reduce hiring activities due to rising operating costs or uncertainty before an important Federal Reserve (Fed) meeting.
One of the biggest declines in history was in May 2020, when ADP reported a 2.76 million job loss. The biggest drop was due to the early spread of COVID-19 and the pandemic containment measures that led to widespread layoffs.
The focus tonight on November ADP, if it does indeed fall by 5,000, is well below the 42,000 in October.
Markets are expected to react quickly; a very weak reading would typically weigh on the US dollar (USD) as it signals a slowing labor market, raising expectations that the Fed may need to ease policy sooner or more aggressively.
In addition, Fed officials are likely to take a more cautious stance ahead of next week's FOMC meeting, especially as investors have already pegged the odds of a 25 basis point rate cut in December.
The weak ADP data would reinforce confidence that monetary policy may begin to move in a looser direction in the near future.
Overall, tonight's ADP report is the main focus of the market as it has the potential to influence USD movements, investor sentiment and Fed policy expectations just days before the important FOMC decision is announced.
