USD/JPY Rallies after ADP Employment Change News

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Companies added the most workers in nearly three years to USA payrolls in February on a surge in construction and manufacturing employment, data from the ADP Research Institute in Roseland, New Jersey, showed Wednesday. Still, some economists raised their February nonfarm payrolls forecasts.

The report is seen as a precursor to Friday's more comprehensive nonfarm payrolls data, which acts as a barometer for the health of the US economy and is a key data point for the Fed to decide on rates. If the bullish data is confirmed in Friday's official jobs report from Washington, the news will further boost confidence for expecting that the Federal Reserve will raise interest rates at next week's monetary policy meeting. The market now expects the report to show growth of about 190,000 jobs. "However, ADP is far from infallible for signaling the more volatile payrolls data". The numbers climbed from 261,000 new jobs added by US employers in January.

Nonetheless, the surge in job growth should bring down the country's unemployment rate from 4.8 to 4.7 percent, according to the Daily Mail. The Fed raised its benchmark overnight rate in December and has forecast three rate increases for 2017.

The U.S. economy is still adding lots of new workers.

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The whole reason to focus on soft data is that, in theory, this enthusiasm for economic prospects leads to actual decisions to hire, spend, and invest. Under the framework of a super-tight labor market, wages would have to rise, inflation would follow, and so too would Fed rate hikes and the end of the expansion. If this ADP report turns out to be an accurate predictor this month, the Trump administration should have a good weekend news cycle, as long as they don't step on it. In particular, it's encouraging to see that the annual pace of growth has picked up in the last two months: Private payrolls increased 1.9% last month vs. the year-earlier level, a five-month high.

The S&P 500 was up 0.03%, the Dow Jones Industrial Average rose 0.07%, and the Nasdaq increased 0.04%.

"The underlying trend in productivity remains disappointing and means higher wages are increasingly weighing on businesses' bottom line", said Gregory Daco, head of USA macroeconomics at Oxford Economics in NY.