Was ADP A Precursor To Friday’s Employment Report?

ADP Employment, Was ADP A Precursor To Friday’s Employment Report?

However, given the recent weakness in China, there is a high probability, given the historical correlation and dependence on China for imports, we will see further softness in the months ahead.

ADP Employment, Was ADP A Precursor To Friday’s Employment Report?

A Weak Precursor to Friday’s Employment Report

The ADP report is well short of expectations at +374k jobs versus expectations for over +600k. The coming BLS report and ADP have not been well correlated over the last year, so do not read too much into this report. However, the timetable for taper hinges in part on continued substantial improvement in the labor market. A corresponding weak number in the Friday BLS data will likely push back market expectations for the start of tapering QE.

TIPS

Over the last year, we have gotten a lot of questions on TIPS. In particular, readers want to better understand how they can protect themselves from inflation. Lyn Alden has an excellent paper describing how TIPS work as well as their pros and cons. CLICK HERE to read it.

In the article, she stresses that while TIPS can provide some protection when inflation is greater than expectations for inflation, they are still likely to result in a decline in purchasing power. One reason is the BLS CPI Index does not accurately capture inflation. Two, the yields on all TIPS are now negative. Negative carry offsets some of the bond’s inflationary benefits.

Negative Real Yields In Germany

The graph below compares the German central bank main rate (similar to Fed Funds) versus year-over-year inflation. Like the U.S., its lending rate is at zero and CPI is soaring. The last time their CPI was at its current level in the early 1990s, the lending rate was about 6%. Not shown, German 10-year bonds yield -0.40%, resulting in a real yield of -4.40%. Absurdly low-interest rates and rising inflation is a global phenomenon and one that could prove dangerous if the recent rise in inflation is not transitory.

ADP Employment, Was ADP A Precursor To Friday’s Employment Report?

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