* U.S. service sector activity rebounds
* Service sector hiring strongest in three years
* Weather pinches hiring, ADP weakest since August
By David Gaffen
Feb 5 Growth picked up in the U.S. service
sector in January, with steady strength in private-sector
hiring, suggesting the winter weather that socked the country
over the last several weeks had a limited effect on the economy.
The data assuaged some concerns that arose from a recent run
of weaker-than-expected reports on sales of durable goods,
manufacturing activity and January car sales, which were
affected in part by the heavy snow and ice that has hit large
swaths of the country.
U.S. private employers added 175,000 jobs in January, the
smallest gain since August, according to payrolls processor ADP,
in part due to the weather. December's increase in jobs was
revised down to 227,000 from the initially reported 238,000. The
report is jointly developed with Moody's Analytics.
The overall pace of job growth wasn't far off ADP's recent
trend, and hiring indexes in both the Institute for Supply
Management survey and a separate service-sector survey from
Markit kept investors optimistic the U.S. Labor Department's
nonfarm payrolls report on Friday will show January hiring
rebounded after a weak December, which saw a payroll gain of
"ADP offset some of the concern from the weak December
payrolls report and showed that the labor market is pretty much
where it was most of last year," said Omair Sharif, senior U.S.
economist at RBS Americas in Stamford, Connecticut.
After two months of slower growth, the Institute for Supply
Management said on Wednesday its services index rose to 54 last
month from 53 in December, and firms added workers at the
fastest clip in more than three years. The 50 level separates
expansion from contraction.
The data comes after a period of weak economic reports,
lackluster holiday sales from large retailers, and as the U.S.
Federal Reserve continues its wind-down of monthly bond buying
that had supported financial asset prices and helped keep
borrowing costs low.
The Fed last week reduced its monthly buying by $10 billion
to $65 billion, and is on track to end its purchases by the end
of 2014. Some have expressed concern about the reduction in
support just as currency crises have erupted in various emerging
markets, in part because of the decline in liquidity.
The U.S. equity market ended 2013 with gains of 30 percent,
but it has since lost ground in part due to weak data. In
Wednesday trading, stocks trimmed earlier losses and were little
changed, but investors found few reasons to buy. Bond yields
were marginally higher after a rally that took benchmark yields
to levels not seen since November.
"Economic data is not bad, but not compelling - markets
prefer easy policy over good data," said Michael O'Rourke, chief
market strategist at JonesTrading.
That said, at this time the Fed does not appear inclined to
sway from its course. Dennis Lockhart, president of the Federal
Reserve Bank of Atlanta, said that unless the economic outlook
worsens, "I think it is reasonable to expect a progression of
similar moves, with the asset purchase program completely wound
down by the fourth quarter of the year."
Charles Plosser, president of the Philadelphia Fed and one
of the more hawkish members of the board, said on Wednesday he
worries the U.S. central bank's accommodative policies will lead
it to have to "chase" the market when in the future it attempts
to tighten policy.
The ADP report is often looked at as a precursor to the
government's payrolls data. A Reuters survey on the payrolls
report showed economists estimate that 185,000 jobs were created
last month, all of them in the private sector.
January marked the 49th straight month the ISM index was
above 50, though the pace of growth has slowed from a more than
Sub-indexes on business activity and new orders also showed
improved growth, alleviating some concern caused by ISM's
manufacturing report earlier this week that showed the new
orders index suffered its biggest drop in 33 years in January.
Employment rose to 56.4, the highest level since November of
Sharif cautioned, however, that the ISM report showed the
number of people saying orders are lower remained elevated, with
two straight months where more people said orders were lower
"That's not a great sign and needs to be monitored carefully
going forward," he said.
Markit's report on service-sector activity showed growth
there quickened to a four-month high in January and hiring
remained robust. Financial data firm Markit said its services
sector purchasing managers index rose to 56.7 from 55.7 in
Economic activity has been affected by severe weather in
many parts of the country, with sub-freezing temperatures
hitting wide swathes of the Northeast, West and Midwest states
in recent weeks. Another storm hit overnight, causing almost
900,000 homes and businesses to lose power, according to local