ADP is a private company managing the payroll of 20% of America’s private workforce – or several million workers – that has been happy to share a series of aggregated and anonymized data with the Fed since 2017. Available with a lead time of just one week, they offer a near real-time picture of the state of the US labor market in terms of hiring, wages and sector trends.
For Fed economists, this powerful analytical tool allows them to detect weak signals. These cracks are not reflected in official statistics from the Bureau of Labor Statistics (BLS), which are often published late and frequently revised a posteriori.
This Fed-ADP partnership was also praised by Jérôme Powell himself, president of the central bank, who revealed that his economists had been able to perfect – thanks to the ADP tool – a method for predicting revisions of official BLS data. A model of institutional intelligence, this alliance between public power and private expertise aims to anticipate a better economy.
Fed researchers point to the impact of weekly ADP data that allowed early detection, during the 2020 pandemic, of pulling rifts in the labor market. When employment plummets, the Fed measures the impact in real-time and acts proactively, a feat that would not be possible if there were bureaucratic delays in the BLS.
Powell even went so far as to state that: “We would have seen the Great Recession come sooner if we had this data in 2008!” »
Structural vulnerability
However, everything came to an abrupt halt at the end of last summer, shortly after one of the seven members of the Fed’s Board of Governors, Christopher Waller, mentioned in a simple footnote to one of his speeches an ADP indicator that he said signaled a slowdown in employment. Citing this data to support his concerns about the labor market, he noted that hiring was below the government’s latest official figures.
Officially, in a “process re-evaluation” aimed at guaranteeing “the highest standards of confidentiality”, the company has stopped sending its weekly data. In reality, no one knows what motivated this breakup.
In fact, this sudden turnaround highlights the risks of public institutions’ dependence on the private sector. In a country where government shutdowns are often a partisan weapon, delegating economic oversight to public companies seems implausible in retrospect.
This sudden suspension suggests that the economic production of knowledge that should guide collective choices now relies heavily on the goodwill of private actors. What happens if these companies decide to leave?
Having tried in vain to block the ADP, in recognition of the rare impotence of the president of the world’s most powerful central bank, Powell should realize that, without this data, the Fed has only an “imperfect substitute” for assessing trends in the labor market.
A cruel paradox that sees the Fed groping its way forward at a time when monetary policy requires the greatest finesse, says a lot about the present, and goes beyond statistics and economic data. The crisis of confidence seems clear to me: is the state still capable of producing reliable knowledge?
A warning to democracies
Beyond the American case, this episode illustrates growing tensions in democracies with integrated economies. This warning signal is indeed global because public authorities rely on data they no longer control, which they cannot even verify.
As the digitalization of the economy gives private companies an edge in information gathering, states find themselves relegated to the ranks of clients, sometimes tolerated, sometimes excluded.
The Fed is clearly not the only one concerned, as tax authorities, health agencies and even statistics agencies increasingly rely on data from technology platforms or companies. If suppliers decide, for commercial or political reasons, to turn off the tap, the entire public decision-making process will be hampered.
Statistical sovereignty
The ADP-Fed case shows the importance of establishing true statistical sovereignty. Fundamental economic data is of course a public good that is as important as electricity or currency. Its production, distribution and conservation must be guaranteed by independent institutions and protected from political harm.
In what chaos, faced with what difficult choices, faced with what risks of error might a less powerful and less visible government face, even if the Fed – an institution of immense resources and global prestige – finds itself powerless against private enterprise?
Without massive investment in public data infrastructure, democracies risk losing their capacity to act and their legitimacy.
Michel Santi is a macroeconomist, financial markets and central banking specialist, and author. He published “A Levantine Youth” with Favre Edition, Foreword by Gilles Kepel. The threadTwitter
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