U.S. private sector job cuts at 1-year low

NEW YORK (Reuters) - Job cuts at U.S. private employers fell in September to the slowest pace in more than a year, according to a private report on Wednesday that suggested businesses may start hiring again sometime early next year.

Private employers shed 254,000 jobs in September, more than the 210,000 economists expected but less than the downwardly revised 277,000 jobs lost in August, according to the ADP Employer Services report.

The data is consistent with a slowing trend showing many sectors of the economy are deteriorating less sharply and, in some cases, have returned to growth, though the U.S. unemployment rate may still hit 10 percent before the economic pain is over.

"It's obviously a little worse than expected, but the broader theme is that the labor market is getting less worse," said Dan Greenhaus, analyst at Miller Tabak & Co in New York.

The ADP and Macroeconomic Advisers say their National Employment Report is designed as a proxy for the government's monthly non-farm payrolls report, which is due on Friday.

The 254,000 job loss for September was the smallest since July 2008 when 93,000 were cut.

The U.S. Labor Department's release is more comprehensive because it includes both the private and public sectors.

"It's very difficult to draw any conclusions for Friday's number because of this," said Greenhaus.

"Given the uncertainty surrounding job creation, there's only so much we can read into it, but in any event, 254,000 private sector jobs lost in a month remains a very poor reading."

THE KISS

After Wednesday's report, Joel Prakken, chairman of Macroeconomic Advisers, said he expected U.S. payroll employment to turn positive in the early months of 2010, but the jobless rate is still likely to rise a bit more before the cutting spree ends.

"I think the unemployment rate is going to kiss 10 percent," Prakken told a teleconference of journalists.

"We still see employment declining through the end of the year -- today's number is consistent with that -- and the unemployment rate continuing to rise through the end of the year."

Currently, Prakken said there was a lot of downward pressure on state and local government employment in particular, which is not covered in the ADP report but figures into the Labor Department's non-farm payrolls report.

Prakken said it would be best not to assume even modest growth in state and local government employment in the September non-farm payrolls report.

"You might want to actually assume a flat to slightly negative number," said Prakken, adding that the recession has hit state budgets hard, though the federal government's economic stimulus spending has mitigated this.

He also said that the manufacturing sector in general was displaying evidence of turning around aggressively, though factory employment has been under downward pressure even in recent economic expansions.

The August ADP jobs decline number was originally reported at 298,000. The U.S. Labor Department will release its September payroll figures at 8:30 a.m. (1230 GMT) on Friday.

It is expected to show the labor market's rate of deterioration slowing, with analysts forecasting a loss of 180,000 jobs in September versus 216,000 in August.

However, the unemployment rate is expected to rise to a 26-year high of 9.8 percent from 9.7 percent the previous month.

(Additional Reporting by Ryan Vlastelica; Editing by Kenneth Barry)