Federal Reserve data shortage worsens! "New Fedwire News Agency": ADP terminates data sharing with the Federal Reserve

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

Since at least 2018, payroll processor ADP has been providing the Federal Reserve with a data set containing anonymized employment and income information on millions of workers. This data covers 20% of the nation's private sector workforce with a lag of only about a week—making it a timely and comprehensive measure of the U.S. labor market situation.

Nick Timiraos, a well-known financial journalist known as the "New Fedwire," wrote that, according to people familiar with the matter, shortly after Fed Governor Christopher Waller’s speech in late August sparked outside attention to the Fed’s longstanding use of ADP’s weekly payroll data, ADP stopped providing data to the Fed.

In a low-key footnote, Waller cited ADP data to support his concerns about a cooling labor market. The footnote stated that preliminary estimates indicated hiring continued to deteriorate throughout the summer, including periods beyond the coverage of the latest U.S. government data. The Fed’s employment indicators based on ADP data are different from ADP’s monthly private sector hiring reports. The ADP monthly report released a week after Waller’s speech reflected the slowdown trend he highlighted.

It is unclear what prompted this change. A Fed spokesperson declined to comment. ADP stated that the company has historically provided the Fed with aggregated administrative data (not client data) free of charge as a public service. “We are actively working with the Fed to ensure improved processes in line with our strict standards for sharing this valuable information.”

The Fed’s Use of ADP Data is Not New

The data sharing relationship between the Federal Reserve and ADP has been public for years. The minutes of recent Fed policy meetings, as recently as 2023, have included general descriptions of Fed analysis using ADP data, similar to Waller’s August speech.

Fed Chair Powell first publicly disclosed the cooperation between the Fed and ADP in a 2019 speech. Powell explained how Fed economists developed a method to use the underlying data to predict official employment growth numbers reported monthly by the Bureau of Labor Statistics, including after revisions.

In the 2019 speech, Powell said that had the Fed had access to ADP data in 2008, policymakers could have spotted the economic deterioration earlier than relying on government data. During recessions, official data is often revised downward retrospectively to reveal weaknesses not obvious in real-time data.

According to people familiar with the matter, Powell has tried to persuade ADP to restore data sharing, but so far those efforts have not been successful. With the government shutdown leading statistical agencies to furlough employees and suspend most data releases for October as of October 1, the lack of data could take on new significance.

In a Q&A at an economic conference last week, Powell said that the Fed does not expect private data sources to fully replace the government statistics it cannot access. But Powell noted there are some fairly good substitutes for employment data, listing ADP as one example.

Fed economists have published multiple papers using ADP data to highlight high-frequency changes in the U.S. labor market, including during the initial outbreak of COVID-19 in 2020, when researchers were attempting to quantify the immediate scale of unemployment.

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