Private sector adds 297,000 jobs in December

By Reuters
Posted Jan. 5 at 11:58 a.m.

U.S. private sector jobs surged in December at a rate three times stronger than forecast, a hiring report showed, the most bullish signal in months that a recovery in the world’s biggest economy is stepping up a gear.

The ADP Employer Services private sector jobs report on Wednesday comes two days ahead of the U.S. government’s closely watched payrolls report. Many economists raised their forecasts for a wider reading of jobs growth on Friday.

“Sometimes numbers come as bolts from the blue; this is one of them,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

“Nothing in any other indicators of the state of the labor market last month — jobless claims, help wanted, surveys — suggested anything like this was remotely likely.”

In another sign of strength in the U.S. economy, an industry group on Wednesday reported its gauge of the massive U.S. services sector reached its highest level in over four years.

The data sparked a sharp cut in prices of U.S. Treasury debt as investors bet on a stronger recovery.

The U.S. dollar gained more than 1 percent against the yen and the euro. Stocks reversed losses and posted moderate gains on the data.

Private employers added a surprising 297,000 jobs last month, the biggest rise ever and up from a gain of 92,000 in November, the ADP data showed. The ADP data goes back to 2000.

Shortly afterwards, the Institute for Supply Management said its index of national services activity rose to 57.1 in December from 55.0 in November — better than economists’ median forecast of 55.6.

The data was the latest in a series, ranging from trade to retail sales, suggesting the U.S. recovery is gaining speed.

“Yet another number that beats consensus and keeps the positive sentiment on the economy alive with some momentum going into the new year,” Sean Incremona, an economist at 4Cast Ltd in New York, said of the service sector data.

The government’s comprehensive labor market report, which includes both public and private sector employment, is due

on Friday. Analysts polled by Reuters expect it to show a rise in overall nonfarm payrolls of 140,000 in December, including a rise in private payrolls of 145,000.

“We now have to expect a much bigger number on Friday, 250,000?” said High Frequency’s Shepherdson.

Adding to the rosy employment picture, the number of planned layoffs at U.S. firms fell last month to the lowest level in 10 years, according to a report by consultants Challenger, Gray & Christmas Inc.

And a survey of chief executives of small companies showed a majority planned to add employees in 2011 for the first time in three years, according to small business group Vistage.

Tempering some of the optimism, an industry group said applications for U.S. home mortgages ebbed in the last couple of months of 2010, with loan rates hovering around their highest levels in seven months.

The housing market, along with high unemployment, has been hindering the recovery of the U.S. economy.


The ADP report, developed jointly with Macroeconomic Advisers LLC, is often used by economists to fine tune their forecasts for the payrolls numbers, though it is not always accurate in predicting the outcome.

The vast majority of the jobs increase was in the service-providing industries, where 270,000 new jobs were created, while the goods-providing industries contributed 27,000 jobs. Manufacturing was up by 23,000 jobs.

The surprise boost was driven by hiring by small and medium-sized firms.

Despite the reaction in financial markets to the data, some analysts were not impressed.

Barclays analyst Theresa Chen advised taking the report with a grain of salt: “The ADP data often do not predict well the changes in non-farm payrolls within the same period, so we are not revising our payroll forecast in response to this report.”

Macroeconomic Advisers Chairman Joel Prakken noted seasonal factors may have boosted the December numbers but said growth in employment was “comfortably into positive territory and seems to be accelerating.”

On Tuesday, minutes from the Federal Reserve’s December policy meeting showed the U.S. central bank felt the economy still needed help despite some signs of strength. There was little appetite to trim the Fed’s $600 billion bond-buying plan, known as QE2, the minutes show.

Yet the strong ADP report could again ramp up the debate over Fed’s bond-buying and near-zero interest rates policy.

Traders are now pricing in a Fed rate hike in November 2011, Fed fund futures showed Wednesday. When QE2 was announced in November, traders expected rates to stay rock-bottom until April 2012.

“You cannot ignore the strength of this report,” said Tom Porcelli, a U.S. economist at RBC Capital Markets. “With small business now beginning to start to ramp up hiring, it’s safe to feel better about the labor backdrop.”

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