(NOTE: BLS and NFP are used somewhat interchangeably below, but the numbers in the charts are actually BLS's PRIVATE payrolls as NFP includes too much distortion from variations in government payrolls, not to mention the fact that ADP tally's private payrolls in the first place and would thus have a better finger on the pulse of private payroll creation)

The first big piece of data due out this morning is the ADP Employment report.  This is a private sector company's attempt to predict the official private payroll numbers that come out 2 days later in the Employment Situation.  It's been mostly maligned in the past as being a lousy short term predictor of the official nonfarm payroll numbers from the Bureau of Labor Statistics (BLS), and for revising it's figures to better match BLS numbers after they become known.

But how true are those gripes?  It depends when you look, as there have been better and worse periods of correlation.  Through it all though, ADP's numbers have consistently been one of the best forward indicators for NFP.  Beyond that, I would argue ADP is in a much better position to give an accurate picture of payroll changes when compared with the US Government because of the antediluvian statistical methods employed by the latter.  ADP, on the other hand is a private company that actually had to be competent and able to grow in order to earn its place in the free market as the largest payroll processor in the world. 

There's no question they're a lot better with payrolls than the government.  Most of what people take exception to comes from the fact that ADP isn't reporting THEIR OWN payroll data, but trying to emulate what they think BLS will do.  This is like a detective trying to get inside the mind of an institutionalized madman.  Nonetheless, markets continue to react most severely to said madman, so ADP will continue to receive criticism for not doing a good enough rendition of insanity. 

Most charts of historical ADP vs BLS figures are relegated to comparing revised numbers, which make the two reports look uncannily correlated.  Here's a chart of the INITIAL releases only, which prevents ADP from revising toward BLS.  Conclusion: BLS is more volatile, and ADP does a somewhat acceptable job of forecasting the initial release (though their stated goal is to capture the "first revision").

2014-11-4 adpnfp 2

A somewhat more useful way to use the ADP numbers is as a predictor of a "beat" or "miss."  In other words, if ADP beats its forecast, how likely is it that the BLS numbers will beat theirs?  This chart shows BLS to be even MORE volatile than the last one.  The higher over zero , the bigger the beat.  The lower under zero, the bigger the miss.

2014-11-4 adpnfp

Finally we come to the Victory Burek Chart.  When he's not rocking the vote and cracking the whip for others to do the same, Victor Burek is quick to remind MBS Live members that ADP frequently revises their initial numbers to more closely match BLS's initial numbers.  This chart shows how frequently that occurs.  When the blue dots are over zero, that means BLS came in higher than ADP.  If the corresponding red dot is also over zero, it indicates that ADP "chased" the BLS release.  For instance, the November numbers were a strong piece of evidence for Victor's point.  Incidentally, ever since we first started posting this chart in early 2014, ADP has gone all "even-keeled" on us.  Hmmm...  Someone must have tipped them off.

2014-11-4 adpnfp3

So will it matter?  No way to know, but the farther from consensus the greater the potential, as always.  Apart from ADP, there's ISM Non-Manufacturing at 10am.  This may be one of the most underrated reports when it comes to market movement.  A big beat/miss is always a consideration for bond markets, even in this current period of lessened economic data importance. 

The rest of the morning's calendar is fleshed out by Fed speakers and a potentially important announcement on Treasury's quarterly refunding needs.  This can be a total non-event if it's in line with market expectations, but can have a quick, noticeable impact if it specifies that bond markets will be dealing with more or less new supply than expected.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
99-29 : +0-00
FNMA 3.5
103-09 : +0-00
FNMA 4.0
106-04 : +0-00
2 YR
0.5380 : +0.0200
10 YR
2.3570 : +0.0220
30 YR
3.0640 : +0.0150
Pricing as of 11/5/14 7:30AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Wednesday, Nov 05
7:00 Mortgage Market Index w/e 386.1
8:15 ADP National Employment (k)* Oct 220 213
10:00 ISM N-Mfg PMI * Oct 58.0 58.6