INSTANT VIEW: Private employers add jobs; productivity up

NEW YORK (Reuters) - U.S. private-sector employers unexpectedly added 40,000 jobs in May, according to a private report by ADP Employer Services released on Wednesday.

U.S. productivity grew at a slightly faster-than-expected 2.6 percent annual rate during the first quarter on stronger output than was initially gauged, government data on Wednesday showed.

KEY POINTS:

ADP * In April, the private sector added 13,000 jobs. April's addition was revised up from the previously reported 10,000. * Economists' median expectation was for a drop of 30,000 jobs in May, according to a Reuters poll.

PRODUCTIVITY * Economists polled by Reuters had expected non-farm productivity, which measures the hourly output per worker, to increase at a 2.5 percent pace, compared with a previously estimated 2.2 percent rate. * Compared with the first quarter of 2007, non-farm productivity was up 3.3 percent, the quickest pace in nearly four years. * The Labor Department said first quarter output was revised higher to show a 0.7 percent gain at an annual rate, from 0.4 percent previously reported. Worker hours shrank 1.8 percent as businesses cut back on labor inputs to shield profits amid a cooling U.S. economy. It was the third straight quarterly decline in hours. * Unit labor costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, rose by 2.2 percent at an annual pace, faster than the 2.0 percent rate forecast by analysts.

COMMENTS:

SAL GUATIERI, SENIOR ECONOMIST, NESBITT BURNS, TORONTO

PRODUCTIVITY: "Given that the size of the revision is fairly modest I don't think there would be must response in either equities or bond markets. But overall the numbers are supportive of the equity markets. U.S. productivity remains healthy as companies strive to efficiency while laying off workers.

"It's a sign that U.S. companies are striving to remain competitive. They've already received a good-sized boost from the weak U.S. dollar, but at the same time they're not getting lazy. They're maintaining productivity improvements, some of that is coming on the back of layoffs, but at the same time companies are able to meet demand with few workers.

SUBODH KUMAR, CHIEF INVESTMENT STRATEGIST, SUBODH KUMAR &

ASSOCIATES, TORONTO:

ADP: "My bottom line would be I think the economy is weak but I still think that it's more like a 1 to 1.5 percent growth type economy. To me it suggests more like a tepid economy rather than an economy in recession."

PRODUCTIVITY: "The productivity numbers are within expectations. It's not dropping further which is a plus for operating margins because operating margins have dropped already. I always thought the earnings numbers would bottom in the middle to second half of 2008 for the S&P 500 and I'm staying with that feel. These productivity numbers are supportive of earnings bottoming out in the second half of this year. Basically companies are holding their own on productivity."

IAN SHEPHERDSON, CHIEF U.S. ECONOMIST, HIGH FREQUENCY

ECONOMICS, VALHALLA, NEW YORK:

ADP: "The ADP survey showed ... the biggest gain since January.