WASHINGTON (Reuters) - Private employers stepped up hiring in June and new applications for unemployment benefits fell for a second straight week last week, pointing to a steadily improving labor market picture.
Still, the pace of economic growth remains lackluster, with other reports on Wednesday showing a slowing in activity in the service industries last month and a widening in the trade deficit in May.
"We are picking up a little momentum in the jobs market," said John Ryding, chief economist at RDQ Economics in New York.
Private payrolls increased 188,000 in June, the ADP National Employment Report showed, up from the 134,000 jobs added in May.
Economists had expected the report, jointly compiled by payrolls processor ADP and Moody's Analytics, to show a gain of 160,000 private jobs. The data was released ahead of the government's more comprehensive employment report on Friday.
The ADP report has a poor record of trying to predict the government's nonfarm payrolls count, but some economists said it increased the chances of a stronger June jobs report than currently being anticipated in the financial markets.
Employers are expected to have added 165,000 jobs in June, according to a Reuters survey of economists, a touch less than May's tally of 175,000 new positions. The unemployment rate is expected to fall a tenth of a percentage point to 7.5 percent.
The employment report could shed fresh clues on the timing of the Federal Reserve's plan to start scaling back its monetary stimulus.
Fed Chairman Ben Bernanke said last month the U.S. central bank expected to trim its bond purchases later this year and halt the program by mid-2014, as long as the economy progresses as it expects.
In a separate report, the Labor Department said initial claims for state unemployment benefits slipped 5,000 to a seasonally adjusted 343,000. That decline put claims at the lower end of their range for this year.
SERVICE INDUSTRIES SLOWING
U.S. shares were trading higher, while prices for U.S. Treasury debt were little changed. The dollar was weak against a basket of currencies.
While labor market conditions are improving, service industries - which account for more than two-thirds of the economy - are losing some momentum.
The Institute for Supply Management's services index fell to 52.2 in June, the lowest level since February 2010, from 53.7 in May. A reading above 50 indicates expansion in the service sector. Even though growth in the services sector slowed, employers still hired more workers.
Activity was dampened by new orders, which fell to their lowest level since July 2009. New orders for exports contracted.
Taken together with a Commerce Department report showing the deficit on the trade balance widened 12.1 percent to $45.0 billion in May, that suggested second-quarter gross domestic product would probably fall well below the 1.8 percent annual pace recorded in the first three months of the year.
When adjusted for inflation, the shortfall on the trade balance increased to $52.3 billion from $47.4 billion in April.
Goldman Sachs trimmed its second-quarter GDP estimate by two tenths of a percentage point to 1.6 percent on the trade data. RBS and Barclays slashed their forecasts by six tenths of a point to 0.8 percent and 1 percent respectively.
Some economists cautioned against reading too much into the deficit's impact on GDP growth, noting that imports accounted for the bulk of the jump. Imports rose 1.9 percent, driven by a mix of industrial materials, consumer and capital goods.
This is a sign that domestic demand and industrial production might be picking up.
"The steady gain in import activity points to continued improvement in domestic activity and signals a broad-based gain in demand," said Millan Mulraine, senior economist at TD Securities in New York.
Exports fell 0.3 percent to $187.1 billion, reflecting sluggish global demand, particularly in major trading partners like China.