* Private hiring rises by 119,000 jobs in April
* Two reports show manufacturing growth slowed
* Construction spending drops in March to 7-month low
* Fed stays the course on bond purchases
By Leah Schnurr
NEW YORK, May 1 U.S. companies hired the fewest
employees in seven months in April while manufacturing growth
slowed to a crawl, suggesting the economy has run into a soft
patch as budget-cutting in Washington starts to bite.
Businesses added 119,000 employees to payrolls last month,
according to the ADP National Employment Report released on
Wednesday, short of economists' expectations for 150,000 jobs
and the smallest gain since last September.
The slowdown was primarily due to the effect of tighter
fiscal policy through a combination of an increase in payroll
taxes at the start of the year and the $85 billion government
spending cuts that went into effect across the board in March,
said Mark Zandi, chief economist at Moody's Analytics, which
jointly develops the ADP report.
"They are starting to bite and starting to weaken growth,"
said Zandi. "It's affecting all industries and almost all
Underlying jobs growth is now likely around 125,000 a month,
Zandi said, down from what looked like a pace of 175,000 at the
beginning of the year. March private payrolls were revised down
to an increase of 131,000 from the previously reported 158,000.
Two separate reports on manufacturing also showed employment
slowed in April, and analysts said there was some risk Friday's
larger employment report from the government could disappoint.
After reaccelerating in the first quarter, recent data
suggests overall economic growth cooled heading into the second
quarter, a familiar pattern the recovery has seen in past years
that has become known as a "spring swoon".
This is partly due to the fiscal tightening, though growth
would likely have pulled back regardless after a stronger first
quarter, said David Sloan, economist at 4Cast Ltd in New York.
The U.S. economy grew at a 2.5 percent rate in the first
quarter, but analysts do not expect that pace to last with most
anticipating the recovery is running at around 2 percent.
"The fact that fiscal policy is being tightened is
preventing the recovery from accelerating into a strong one.
It's just keeping the recovery at a relatively modest pace,"
The Federal Reserve cited the risks to growth from tighter
fiscal policy as the U.S. central bank maintained its monthly
$85 billion in bond purchases to prop up the economy.
Other reports on Wednesday showed growth in the
manufacturing sector slowed last month, while construction
spending dropped to a seven-month low in March.
Financial data firm Markit said its final U.S. Manufacturing
Purchasing Managers Index slipped to 52.1 from 54.6 in March. It
was the lowest final reading since October.
That was echoed by a separate report from the Institute for
Supply Management that showed the sector expanded only modestly,
with its index coming in at 50.7, down from 51.3.
Readings above 50 indicate expansion. Regional reports also
showed a slowdown in factory activity in April in some areas
while some fell into contraction, including the Midwest.
Construction spending fell 1.7 percent to an annual rate of
$856.72 billion, the lowest since August, according to the
Commerce Department. The drop could cause the first-quarter
economic growth estimate to be trimmed from its first reading of
The day's data weighed on Wall Street with stocks
trading lower in the mid-afternoon.
In a bright spot of strength, the three big U.S. automakers
reported better-than-expected U.S. April sales.
Focus will turn to Friday's jobs report from the Labor
Department, which is expected to show overall nonfarm payrolls
increased by 145,000, an improvement over the paltry 88,000 seen
in March. Private payrolls are expected to have risen by
Economists sometimes tweak their payrolls forecasts
following the ADP report, though the private-sector report does
not always accurately predict the government figures.
Since ADP overhauled its employment report late last year,
it has missed the government figures by an average of 40,000 a
month in either direction, according to Jim O'Sullivan, chief
U.S. economist at High Frequency Economics.
That's better than the 58,000 average miss in the 12 months
before that, but with only six months' worth of the new ADP
report, the history is not yet conclusive, said O'Sullivan.