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WRAPUP 3-U.S. companies hire fewer in March, service sector growth slows
April 3, 2013 / 4:06 PM / 4 years ago

WRAPUP 3-U.S. companies hire fewer in March, service sector growth slows

5 Min Read

* US private sector adds 158,000 jobs in March, below views
    * US service sector growth index falls to 54.4 from 56
    * Wall Street falls on disappointing data

    By Leah Schnurr
    NEW YORK, April 3 (Reuters) - U.S. companies hired at the
weakest pace in five months in March as recent strong demand for
construction jobs evaporated, while growth in the vast services
sector slowed, signs that the economic recovery could be hitting
a soft patch.
    The ADP National Employment Report said on Wednesday that
private employers added 158,000 jobs last month, falling short
of economists' expectations for 200,000 new jobs. The hiring was
below the lowest estimates in a poll by Reuters and was the
smallest gain since October. 
    A separate report on the health of the services sector,
which dominates the U.S. economy, also showed employment growth
pulled back in March, stirring concerns that the government's
closely watched monthly labor market report due out on Friday
could miss expectations.
    Upbeat data in recent months, including on the labor market,
has suggested the economy picked up in the first quarter after
growing at a weak 0.4 percent rate in the fourth quarter of last
    But Wednesday's reports suggested the first quarter may have
ended on a softer note, as did data on Monday showing that
growth in factory activity cooled in March. Economists said the
slowdown in those areas could lay the foundation for weaker
growth in the current quarter.
    "That's been the process this whole recovery - you get one
strong quarter and then things start to slow down again," said
Scott Brown, chief economist at Raymond James in St. Petersburg,
    Although there has been little sign of an impact to the
economy from the federal government's $85 billion in spending
cuts that started to take effect in March, economists say it
could start to show up as the year progresses.
    "It looks like activity may have slowed down from the higher
pace at the start of the year," said Sam Bullard, senior
economist at Wells Fargo in Charlotte, North Carolina.
    "If we do see a pullback, it's probably not going to be all
that surprising given the headwinds we have in front of us." 
    Those concerns will likely keep the Federal Reserve's loose
monetary policy in place as the central bank works to boost the
economy through its quantitative easing program.
    The day's data hit financial markets, pulling U.S. stocks
lower. Still, the benchmark S&P 500 index remained within
striking distance of an all-time intraday high. 

    The pullback in March hiring seen in the ADP report was
largely due to a slowdown in construction job growth after
showing strength in recent months, said Mark Zandi, chief
economist for Moody's Analytics, which jointly develops the ADP
report. There were zero new construction jobs in March.
    Recent monthly gains in the construction sector have
averaged about 35,000, Zandi said, as the housing recovery has
gained traction. Hiring may also have been boosted in the
short-term by rebuilding efforts following the massive storm
that hit the U.S. northeast in the fall of last year, he said.
    "If that's the case, underlying job growth is not changed
appreciably," said Zandi, estimating overall employment growth
is running at around 175,000 a month. 
    Revisions to February's jobs gains were more positive, with
the private payrolls figure raised to an increase of 237,000
from the previously reported 198,000, although January was
revised down to 177,000 from 215,000. 
    The ADP report comes ahead of the government's more
comprehensive labor market report due on Friday. 
    That report is expected to show 200,000 jobs were created
last month. Economists said Wednesday's data could add some
downside risk to their forecasts, though they cautioned the ADP
report is not always an accurate predictor. 
    Jim O'Sullivan, chief U.S. economist at High Frequency
Economics, lowered his estimate for Friday's payrolls to 160,000
from 215,000.
    A report from The Institute for Supply Management showed the
pace of growth in the U.S. services sector slowed in March to
the lowest level in seven months, with the ISM index falling to
a reading of 54.4 from 56 in February. A reading above 50
indicates expansion in the sector.
    The forward-looking new orders index slipped to 54.6 from
58.2, while employment dropped to its lowest level since
November at 53.3 from 57.2.
    Still, the service sector has been more resilient than its
manufacturing counterpart and has held above the 50 level on the
index indicating expansion since the beginning of 2010.

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