NEW YORK (Reuters) - U.S. private sector employers added more jobs than expected last month, raising hopes that Friday’s closely watched government jobs report could show more growth than anticipated.
Economists said the private-sector data released on Wednesday bodes well for the labor market, though they noted the month-to-month changes in the ADP Employer Services report are not always good predictors of the U.S. Labor Department’s larger nonfarm payrolls data.
High unemployment remains a big hurdle for economic recovery, with companies still reluctant to hire and cash-strapped states and local governments cutting jobs.
Nonetheless, independent surveys have pointed to momentum in job creation.
Employers added 217,000 jobs in February, ADP reported, above expectations for a rise of 175,000.
“Looking at the ADP numbers over the last five or six months, the trend is clearly toward stronger private sector employment and we should see that trend going forward,” said Steve Blitz, senior economist for ITG Investment Research in New York.
January’s figure was revised higher by 2,000 to 189,000. ADP also released its annual revisions back to the report’s inception in December 2000.
The data reinforced Tuesday’s report from the Institute for Supply Management, or ISM, that showed manufacturing companies’ willingness to hire improved in February at the strongest pace in decades.
A Reuters poll of economists, carried out before Wednesday’s ADP survey, predicted that Friday’s nonfarm payrolls report for February will show a gain in private sector payrolls of 190,000 and a rise of 185,000 in overall nonfarm payrolls.
That comes after only a small gain in January, when hiring was limited by extreme winter weather. January’s gains in private-sector employment were tempered by a decline in government-sector jobs.
The ADP report is not affected by weather as the government figures are because ADP’s is based on company payrolls, which do not change with weather.
“The rise in ADP in February, taken with other indicators like claims and (ISM) employment, is consistent, we reckon, with official private payrolls rising by about 250,000,” Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a research note.
He said he expects overall nonfarm payrolls to rise by 225,000, up from his previous forecast of 200,000.
Goldman Sachs wrote in a note that the ADP and ISM reports “point to some upside risk to our preliminary forecast for a 200,000 increase on Friday.”
Federal Reserve Chairman Ben Bernanke said a Republican plan to cut spending would not cause a big dent in U.S. economic growth, but could cost around 200,000 jobs over two years.
Speaking to the House Financial Services Committee, Bernanke said that despite concerns about the longer-term budget deficit, the Fed’s focus is on reducing unemployment.
The central bank said in its Beige Book summary that economic activity slowly gained strength as 2011 opened, while job prospects “modestly improved across the country.” However, some companies still wanted to hire only temporary workers instead of creating permanent jobs.
ADP’s figures, however, underpinned support for views that the labor market is strengthening. The ADP data supported U.S. stocks, but investors were more focused on surging oil prices.
Separately, data from a consulting firm showed that the number of planned lay-offs by U.S. employers rose in February to an 11-month high, led by the government and non-profit sector.
Boston Scientific Corp said it plans further lay-offs in its biggest business unit for pacemakers and other heart devices. A source said they will affect about 5 percent of staff within the unit’s clinical division.
Another report issued on Wednesday showed applications for U.S. home mortgages fell last week and refinance activity declined even as interest rates dipped. Housing, closely linked to employment, remains one of the weaker areas of the economy.
Editing by Dan Grebler