ADP Employment Change report to show slowing US job growth, limited Fed impact likely

By News Room Last updated Jan 8, 2025

The ADP Employment Change will likely have a limited impact on financial markets.
The US private sector is expected to have added 140,000 new positions in December.
The US Dollar Index corrected extreme overbought conditions, retains its bullish stance.

Financial markets slowly return from the winter holidays and the macroeconomic calendar starts to be packed. These days, the focus has been on the United States (US) and President-elect Donald Trump’s proposed tariffs. Market sentiment has led the way in the absence of relevant data, with the mood seesawing between hopes and despair of what the new US administration would mean to the global economy.

US employment, however, is taking centre stage. The ADP Research Institute will release the December Employment Change report on Wednesday, a survey that estimates the number of new jobs created by the private sector.

It is worth remembering that the ADP report is typically released two days before the official Nonfarm Payrolls (NFP) report. The ADP data is often viewed as an early preview of the Bureau of Labor Statistics (BLS) jobs report. However, the connection between the two has proven inconsistent over time.

Employment growth and its role in shaping Fed policy

Employment is critical, as is one of the two legs of the Federal Reserve’s (Fed) dual mandate. The US central bank should maintain price stability and pursue maximum employment. As inflationary pressures receded, the focus temporarily shifted to employment in the second quarter of 2024, as a strong labor market somehow posed a risk to inflation.

Still, the focus returned to inflation after the 2024 presidential election. Former president Donald Trump won the run and will return to the White House as the 47th US president in a few days. Not only did he achieve victory, but the Republican party also won control of Congress, leading in both houses.

Fears that Trump’s policies will result in fresh inflationary pressures have helped the Fed to adopt a more cautious approach to interest rate cuts. The Fed trimmed the benchmark interest rate for the first time in September, delivering cuts also in November and December to a total of 100 basis points (bps) in 2024.

In the December monetary policy meeting, however, US policymakers anticipated through the Summary of Economic Projections (SEP) or dot plot, that the pace of interest rate cuts will slow down this year, foreseeing just two potential trims in 2025.

At this point, it seems unlikely the ADP report, or even the upcoming NFP report on Friday, could affect expectations of two modest rate cuts. One-month figures on their own hardly affect the central bank’s stance.

According to the CME FedWatch Tool, the odds for an interest rate cut overcome those for an on-hold decision only in June.

With that in mind, ADP figures will probably be taken with a pinch of salt.

When will the ADP Report be released, and how could it affect the USD Index?

The ADP Employment Change report for December will be released on Wednesday at 13:15 GMT. It’s expected to show that the US private sector added 140K new jobs after gaining 146K in November.

Ahead of the release, the US Dollar Index (DXY) has retreated from a multi-year peak of 109.56 posted on Jan 2 and hovers around the 108.00 mark. A reading in line with expectations should have no impact on the DXY, particularly considering that the Federal Open Market Committee (FOMC) will release the Minutes of the December meeting later in the day. Speculative interest will likely wait for the document, hoping it could offer some clues on upcoming monetary policy decisions.

An upbeat figure could signal a stronger labour market, keeping the Fed on the hawkish side. As a result, the US Dollar Index should regain its prevalent strength. The opposite scenario, however, will not be as straightforward. A poor report will not be enough to boost speculation of a soon-to-come interest rate cut. The DXY may fall as an immediate reaction to the news, but the decline will likely be short-lived.

From a technical perspective, Valeria Bednarik, Chief Analyst at FXStreet, says: “The US Dollar Index (DXY) corrected overbought conditions in the daily chart, with the downward run losing steam. In the mentioned time frame, a bullish 20 Simple Moving Average (SMA) provides dynamic support at around 107.90, attracting buyers for a second consecutive day. Technical indicators, in the meantime, are turning flat above their midlines, reflecting easing buying interest.”

Bednarik adds: “Buyers will likely take their chances on dips, with immediate support at 107.74, the December 30 intraday low. Additional slides may see DXY falling towards 107.18, the December 13 high, with a break below 107.00 unlikely with the ADP release. Initial resistance lies at 108.55, the December 20 intraday high, with gains beyond the latter exposing the aforementioned 109.56 multi-year high.

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.

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.