ADP: Another Upside Surprise

Bottom Line:   ADP reported sharply better-than-expected hiring again in July (the fourth consecutive upside surprise). While slower than the June gains of 455k, July's 324k increase brought the three-month average to nearly 350k, notably faster than the pace of the last six- and 12 months, suggesting a reacceleration in the trend. Gains in education and health services cooled, but jobs in information (mostly media, entertainment, and some tech) rose after several months of declines. The only weak sector remained manufacturing, which shed jobs for a fifth month. The ADP report showed a robust labor market that is re-accelerating rather than cooling, as many policymakers had hoped. It leaves scope for an upside surprise of the 200k consensus gain expected Friday for July's nonfarm payroll survey -- but we should note that the relationship has shown a lower correlation in the last year.