NEW YORK U.S. private employers added a larger-than-expected 198,000 jobs in February, bolstering hopes that hiring across the economy is improving, a report by a payrolls processor showed on Wednesday.
Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 170,000 jobs. January's private payrolls were revised up to an increase of 215,000 from the previously reported 192,000.
The report is jointly developed with Moody's Analytics.
A solid gain in construction jobs underscored recent signs of improvement in the housing market. Home prices have been rising since last February and the sector last year contributed to overall U.S. growth for the first time since 2005.
"It feels like underlying job growth continues to improve, and at the current pace, this should be enough to start bringing down unemployment," said Mark Zandi, chief economist at Moody's Analytics. The jobless rate is currently at 7.9 percent.
"In a really rip-roaring economy, we'd be creating closer to 300,000 jobs a month or a bit north of that. So we're not there yet, but we're moving in the right direction," he said.
Hiring ticked up despite worries about government belt-tightening and higher taxes, though Zandi said those factors could slow the pace of growth later this year.
"It implies that we do seem to be getting a little bit of a pick-up in the employment conditions, which is very surprising given the implementation of the higher payroll tax and the upward tick in gasoline prices," said Russel T. Price, senior economist at Ameriprise Financial Services in Troy, Michigan.
"So it is encouraging that the economy does seem to be picking up a little bit despite these near-term headwinds."
U.S. stock futures extended gains after the data, setting up the Dow Jones Industrial Average to start the day higher after hitting a record high on Tuesday.
Crucially, hiring last month was spread evenly across small, medium and large business, the report showed. Private sector hiring in January was skewed heavily toward small businesses.
The number may bode well for the government's more comprehensive labor market report, due on Friday, which includes both public and private sector employment.
Economists polled by Reuters expect the government report to show employers added 160,000 jobs last month overall, above January's tally of 157,000. Private payrolls are expected to rise by 167,000.
Millan Mulraine, fixed income strategist at TD Securities in New York, said the ADP report "reinforces our bias for an above-consensus 180,000 gain in private payrolls in February."
(Reporting By Steven C. Johnson; Editing by Chizu Nomiyama)