(Updates with ISM index, factory order data, adds quotes)
By Steven C. Johnson
NEW YORK Aug 5 U.S. private employers cut more
jobs than expected last month and the vast services sector
contracted again, stoking concern about the strength of a U.S.
recovery, data showed on Wednesday.
In addition, U.S. firms planned to increase layoffs in July
for the first time in six months, another report showed,
increasing investor anxiety about the government's
unemployment report for July due on Friday.
"We're looking at a U-shaped recovery, which means getting
off the bottom is going to be a lot more difficult than people
are anticipating in the market," said Doug Roberts, chief
investment strategist at Channel Capital Research in
Shrewsbury, New Jersey.
Wall Street stocks fell, snapping a four-day winning
streak, while the dollar dipped against the Japanese yen but
rose against the euro.
American private employers cut 371,000 jobs last month,
according to the ADP Employer Services report, jointly
developed with Macroeconomic Advisers LLC.
That was less than 463,000 cuts in June but above the
345,000 job losses economists had expected for July.
Outplacement consultancy Challenger, Gray & Christmas, Inc.
also reported that U.S. firms' layoff plans in July surged 31
percent compared with June, which had marked a 15-month low.
Labor market strains were evident in the services sector,
which comprises 80 percent of U.S. economic output. The
Institute for Supply Management said its services index fell to
46.4 last month from 47.0 in June.
Economists had expected the number to rise to 48.0, closer
to the dividing line between growth and contraction at 50. The
last time the index was above 50 was August of 2008.
"This is not good news for the labor market, given the
disappointing ADP reading," said Richard DeKaser, president of
Woodley Park Research in Washington. "These are not good
numbers in the same day."
A Reuters poll of economists predicted Friday's payrolls
report, which includes private and public employment, would
show 320,000 job cuts in July, down from 467,000 in June.
The White House said the Labor Department report will show
hundreds of thousands more lost jobs in July.
Recent data has painted a mixed picture of U.S. economic
health, with the ISM's manufacturing index earlier this week
showing a slower-than-expected contraction in July.
Investors gleaned a glimmer of hope from a Commerce
Department report showing new orders at U.S. factories
unexpectedly rose in June, though DeKaser said that was driven
by factories "eking out gains due to low inventories."
He added, "there is a clear lag in the recovery in the
services sector, which reflects the anemic consumer part of the
In a separate report, the Mortgage Bankers Association said
demand for U.S. home loans rose last week as a three-week low
in 30-year fixed mortgage rates boosted applications for
That came a day after U.S. data showed pending home sales
jumped 3.6 percent in June, adding to hope that U.S. home
prices may finally be nearing the end of a precipitous fall.
"Most folks are hopeful, based on all the numbers we've
been seeing, that we've got a floor here and we're going to
start seeing a long, slow recovery." said Jonathan Corr, chief
strategy officer at Pleasanton, California-based mortgage
software provider Ellie Mae.
But hopes on this front also came with a caveat, and
analysts said a swift rebound from the housing market's worst
slump since the Great Depression is not on the horizon.
Demand for mortgages to buy new homes -- rather than to
refinance existing debt -- remains weak, with purchase loan
requests rising just 0.9 percent last week, the MBA said.
"We can't march around in victory yet," Corr said, "but
we're starting to see the light at the end of the tunnel."
(Additional reporting by Chris Reese, Lynn Adler, Mary Rowe
and Richard Leong; Editing by Kenneth Barry)