NEW YORK Private employers unexpectedly shed jobs in September, reinforcing the conviction that the Federal Reserve as early as next month will embark on another round of monetary policy stimulus to support the economic recovery.
ADP's national employment report on Wednesday said U.S. private employer payrolls fell by 39,000 jobs in September. The median forecast from a Reuters poll was for an increase of 24,000 jobs.
The Fed's decision on further quantitative easing, due at their early November policy meeting, will likely hinge on inflation and labor market developments and the monthly U.S. Labor Department report on employment on Friday.
The nonfarm payrolls report will likely show zero growth in September from August as a further unwinding of temporary U.S. Census jobs and layoffs at state and local governments offset a slight pickup in private hiring, according to a Reuters survey.
A strong payrolls reading is possible, said Zach Pandl, U.S. economist at Nomura Securities in New York. "But in general if we get anything looking like this on Friday, 'QE2' is a done deal at the November 3 (Fed) meeting."
With more Fed easing expected, the dollar dropped to a fresh 15-year low against the yen, and U.S. stocks traded flat, held back by the surprise ADP report. Benchmark 10-year Treasury debt prices gained.
Another report on Wednesday showed the number of planned layoffs at U.S. firms rose slightly in September, though it was the second lowest level of the year, according to the report from consultants Challenger, Gray & Christmas Inc.
"This does not bode particularly well for private sector employment" in Friday's jobs report, said Steven Wood, chief economist at Insight Economics in Danville, California, "although some of the largest divergences between the ADP employment report and the employment situation report have been in the last couple of months."
The Fed last month said it was ready to inject more money into the economy if needed to shore up a sluggish recovery from the worst downturn since the 1930s and prevent a damaging bout of deflation.
The Fed, which has already injected $1.7 trillion into the economy by purchasing mortgage-related and government bonds, next meets on November 2-3.
IMF CUTS FORECAST FOR U.S. ECONOMIC GROWTH
The International Monetary Fund said on Wednesday U.S. economic growth will be much weaker this year and in 2011 than previously thought, dimming hopes for a drop in unemployment any time soon.
In a sober assessment of the U.S. outlook, the IMF cut its estimate for 2010 growth to 2.6 percent from the 3.3 percent it forecast in July and said gross domestic product will expand 2.3 percent in 2011 instead of 2.9 percent.
One bright spot on Wednesday offered hope for the hard-hit U.S. housing market.
The Mortgage Bankers Association said U.S. mortgage applications for home purchasing rose for a second straight week, with demand at its highest level since early May as potential homeowners took advantage of record low interest rates.
The housing market, however, remains highly vulnerable to setbacks and most economists believe a recovery will be elusive until the labor market improves.
A separate report from MasterCard Advisors' SpendingPulse showed caution remained the name of the game for U.S. consumers in September, but there was an upswing in spending on back-to-school supplies and less expensive electronics.
(Additional Reporting by Emily Flitter and Phil Wahba in New York and Glenn Somerville in Washington; Editing by Padraic Cassidy)