Non-farm payrolls are showing resilience, whereas the ADP private survey indicates a decline in jobs. Historically, these surveys have demonstrated discrepancies over time. In June, non-farm payrolls reported an increase of 147,000 jobs, while ADP showed a decrease of 33,000, with half of the official data gains coming from government hiring not covered by ADP.

One hypothesis attributes this divergence to immigration patterns. ADP might more accurately capture jobs held by illegal immigrants than government data does. Illegal immigrants might be paid in cash or employ other means to work without detection, roles potentially diminishing due to enforcement actions.

There may be hesitance among companies and immigrants to report illegal immigration in official non-farm payroll surveys, fearing repercussions or avoiding participation altogether. The official data could reflect the replacement of illegal immigrant jobs by legal workers, potentially explaining excess hiring figures. This theory, however, lacks empirical support.

Impact On Financial Markets

These employment reporting differences have influenced financial markets, resulting in an upswing in the US dollar and reduced expectations for Federal Reserve rate cuts. The role of immigration in the US economy remains an essential area for ongoing observation.

The article discusses a common occurrence: two measures of job creation in the US economy—non-farm payrolls and the ADP private survey—often produce different results. Recently, that gap has widened. While government figures showed job growth, the private data revealed a drop. Interestingly, much of the job growth in the official numbers came from areas the ADP survey doesn’t even cover—government positions. That matters, especially when trying to understand the broader direction of the US economy.

One explanation offered for this divide is focused on immigration. There’s speculation that the ADP survey may account for certain kinds of employment that the official figures miss. For example, people working off-the-books or in ways not tracked through formal government methods. These discrepancies can become sharper when immigration enforcement increases or when certain sectors hire more legally documented employees over undocumented ones. The idea is that while government data may reflect one thing, private reports like ADP’s might tell a different story due to who they can capture in their figures.

That said, this theory remains unproven. It sounds plausible but doesn’t yet rest on a broad base of measurable evidence. Still, the market has noticed these differences. As a result, we’ve seen the strength of the dollar increase and the probability priced into interest rate futures for rate cuts has declined. Markets are using the more bullish interpretation from the government numbers. That creates its own momentum.

Market Opportunities And Risks

In contexts like this, misalignments between hard data and market reactions can produce trading opportunities, but they also come with higher exposure. It’s important to distinguish between structural shifts and one-off distortions. The next employment reports may adjust expectations again. The differing pace at which data revisions occur, plus sectoral weightings in the surveys, may create windows of inefficiency.

With that in mind, we adjust our views accordingly over short-term durations. When government hiring accounts for a large portion of payroll expansion, it calls for caution in extrapolating broader economic strength, especially since such jobs often don’t reflect shifts in consumer-facing demand or private enterprise confidence. If we see further divergence, we’ll anchor more closely to sectors that reflect cyclical momentum. The reaction function of policymakers tends to depend more on headline figures, but deeper divergences between indicators could ultimately complicate their path forward.

Price movements in front-end yields are particularly affected by this shifting outlook. If government-linked hiring fails to translate into real wage growth or private consumption, then inflation risks may ease faster than expected. In that case, the repricing seen this month might retrace. For now, though, volatility looks set to stay inflated near key datapoints. We’ll roll positions selectively around upcoming prints.

Create your live VT Markets account and start trading now.