Private Job Growth Slows a Bit, but Service Sector Upbeat

adp employment report
Alan Diaz/AP

By Lucia Mutikani

WASHINGTON -- U.S. companies hired fewer workers than expected in August, but an acceleration in service-sector activity to a nine-year high offered assurance that the economy remained on track for a sturdy rate of growth in the third quarter.

That view was reinforced by other data Thursday showing only a slight increase in the number of Americans filing for unemployment benefits last week and a decline in the trade deficit to its lowest point in six months in July.

"The story line of growth momentum at least being sustained and at best picking up this quarter has more or less been confirmed, and this is certainly encouraging," said Millan Mulraine, deputy chief economist at TD Securities in New York.

%VIRTUAL-WSSCourseInline-876%The ADP National Employment Report showed private payrolls increased by 204,000 workers last month after rising by 212,000 in July.

While that was below economists' expectations for a gain of 220,000 jobs, it marked the fifth straight month of private sector employment gains above 200,000. The increases in payrolls also were broad-based.

The report is jointly developed with Moody's Analytics.

The data was released ahead of the government's more comprehensive employment report on Friday. Nonfarm payrolls are expected to have increased by 225,000 last month after advancing by 209,000 in July, according to a Reuters survey.

In a separate report, the Institute for Supply Management said its services index rose to 59.6 last month, which it said was the highest reading since its inception in January 2008. That compared to a reading of 58.7 in July.

A reading above 50 indicates expansion in the vast services sectors.

A subindex of service industry jobs increased solidly, which bodes well for August payrolls.

The upbeat job-market picture was also captured in another report from the Labor Department that showed initial claims for state unemployment benefits increasing by 4,000 to a seasonally adjusted 302,000 for the week ended Aug. 30, but still at levels consistent with tightening conditions.

The job market is being closely monitored for clues as to when the Federal Reserve will start tightening monetary policy, having kept its benchmark overnight lending rate near zero since December 2008.

Trade Deficit Narrows

The strength the U.S. economy has exhibited in recent months stands in sharp contrast to the euro zone, which is flirting with recession and deflation. The European Central Bank on Thursday cut interest rates to new record lows in an attempt to spur stronger activity.

The dollar rose to a 14-month high against the euro. U.S. stocks traded higher, while prices for U.S. Treasury debt fell.

In a third report, the Commerce Department said the U.S. trade deficit fell 0.6 percent to $40.5 billion in July, the smallest gap since January. June's trade deficit was revised to $40.8 billion.

Economists polled by Reuters had expected the deficit to widen to $42.2 billion from a previously reported $41.5 billion shortfall in June.

When adjusted for inflation, the deficit narrowed to $48.2 billion, the smallest gap since December 2013, from $48.9 billion in June. That could see economists raise their estimates for third-quarter gross domestic product. Third-quarter GDP growth estimates range as high as a 3.5 percent annual pace.

Trade weighed on growth in the April-June period.

Exports increased 0.9 percent to a record high of $198.0 billion in July, supported by a surge in goods, automobiles, parts and engines, as well as non-petroleum products.

Imports rebounded 0.7 percent to $238.6 billion after declining in June, a sign of underlying strength in domestic demand.

The increase in imports was driven by food and autos, which both hit record highs.

Petroleum imports declined, which saw the petroleum deficit hitting its lowest level since May 2009. A domestic energy boom has seen the United States reduce its dependence on foreign oil.

The politically sensitive trade gap with China was the highest on record in July.

-With additional reporting by Ryan Vlastelica and Caroline Valetkevitch in New York.

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