The missing data from the Federal Reserve adds insult to injury! "New Federal Reserve News Agency": ADP terminates data sharing with the Federal Reserve

Due to the ongoing government shutdown in the United States, Federal Reserve officials are unable to access U.S. economic statistics and have recently lost another source of employment data from a third-party supplier.

Since at least 2018, payroll processing company ADP has provided the Federal Reserve with a set of datasets containing anonymized employment and income information for millions of workers. This data covers 20% of the private sector workforce in the U.S. and has a lag time of only about a week—making it a timely and comprehensive measure of the state of the U.S. labor market.

Renowned financial journalist Nick Timiraos, known as the "new Federal Reserve correspondent," reported that, according to informed sources, shortly after Federal Reserve Governor Christopher Waller's speech at the end of August raised concerns about the Fed's long-term use of ADP's weekly payroll data, ADP stopped providing data to the Federal Reserve.

In a bland footnote, Waller cited ADP data to support his concerns about a slowdown in the labor market. The footnote stated that preliminary estimates indicated a continued deterioration in hiring throughout the summer, including periods beyond the latest U.S. government data coverage. The employment indicators based on ADP used by the Federal Reserve differ from the monthly payroll survey report released by ADP. The monthly report released a week after Waller's speech reflected the slowdown trend he pointed out.

It is currently unclear what prompted this change. A Federal Reserve spokesperson declined to comment. ADP stated that the company has traditionally provided the Federal Reserve with aggregated administrative data (not client data) as a public service for free. "We are actively working with the Federal Reserve to ensure that we improve processes according to our strict standards to share this valuable information."

The Federal Reserve's Use of ADP Data Is Not New

The data-sharing relationship between the Federal Reserve and ADP has been public for many years. The minutes from the Federal Reserve's policy meetings recently included a summary description of the Fed's analysis of ADP data, similar to Waller's speech in August.

Federal Reserve Chairman Jerome Powell publicly disclosed the collaboration with ADP in a speech in 2019. Powell explained how Federal Reserve economists developed a method to use underlying data to predict the official employment growth data reported monthly by the Bureau of Labor Statistics, including revised data.

In his 2019 speech, Powell stated that if the Federal Reserve had access to ADP data in 2008, policymakers could have detected the economic deterioration earlier than government data indicated. During economic downturns, official data is often revised downward retrospectively to show weaknesses that are not apparent in real-time data.

According to informed sources, Powell has attempted to persuade ADP to resume data sharing, but these efforts have not yet been successful. The absence of data may have new significance after the U.S. government shutdown led to statistical agencies furloughing employees and suspending most data releases for the month starting October 1.

In a Q&A session at an economic conference last week, Powell stated that the Federal Reserve does not expect private data sources to fully replace the government statistical data it has been unable to obtain. However, Powell noted that there are some quite good substitutes for employment data and listed ADP as one of them Federal Reserve economists have published several papers utilizing ADP data to highlight the high-frequency changes in the U.S. labor market, including the early stages of the COVID-19 pandemic in 2020, when researchers attempted to measure the direct scale of unemployment