April 4, 2018 / 2:39 PM / 4 months ago

U.S. private payrolls rise strongly; services sector growth slows

WASHINGTON (Reuters) - U.S. private payrolls increased solidly in March as hiring rose across the board, pointing to a robust labor market that continues to underpin economic growth.

FILE PHOTO: A mule truck moves a container in the Port of Miami in Miami, Florida, U.S., May 19, 2016. REUTERS/Carlo Allegri/File Photo

Labor market momentum was also underscored by a report on Wednesday showing sturdy gains in employment in the services industries last month even though a sharp drop in new orders restrained growth in the sector.

The reports supported economists’ expectations of strong job growth in March. The Labor Department will publish its closely watched employment report on Friday.

“It points to a labor market still in exceptionally good health,” said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

The ADP National Employment Report showed private payrolls increased by 241,000 jobs in March after rising 246,000 in February. Last month’s increase beat economists’ expectations for a 205,000 gain.

The ADP report is jointly developed with Moody’s Analytics. It said construction companies hired 31,000 workers last month and manufacturers added 29,000 jobs to their payrolls. Employment in the services sector increased by 176,000 jobs.

That was corroborated by the Institute for Supply Management’s (ISM) non-manufacturing survey, which showed the ISM’s employment sub-index rising to a reading of 56.6 in March from 55.0 in February.

The increase in services industry employment came despite the ISM non-manufacturing index falling 0.7 point to a reading of 58.8 as a measure of new orders fell 5.3 points. A reading above 50 indicates expansion in the sector, which accounts for more than two-thirds of U.S. economic activity.

While the ADP report is not a good predictor of the private payrolls component of the government’s more comprehensive employment report, it nonetheless left economists confident of their forecasts for solid job gains in March.

According to a Reuters survey of economists, nonfarm payrolls likely increased by 190,000 jobs after surging 313,000 in February. The unemployment rate is forecast falling one-tenth of a percentage point to 4.0 percent in March.

U.S. financial markets were little moved by the data as investors fretted over escalating trade tensions between the United States and China after the world’s two biggest economies announced against each other tariffs on $50 billion worth of goods.

Stocks on Wall Street tumbled in morning trade before recouping losses early in the afternoon. The dollar was trading lower against a basket of currencies and prices for U.S. Treasuries fell.

TARIFF SPAT

The tariff spat is starting to impact some businesses. The ISM survey quoted respondents in the construction industry as complaining about price volatility because of the tariffs.

According to the construction firms, “accurate, long-term planning has become incredibly difficult, as distributors that historically held costs for at least 30 days are now, in some cases, committing to only seven days, as prices can change drastically in that time.”

Similar views were echoed in the ISM’s survey of manufacturers, published on Monday.

Manufacturers reported that tariffs on steel and aluminum imports imposed by President Donald Trump in early March were raising prices, “causing panic buying” and “leading to inventory shortages for non-contract customers.”

Before the tariffs manufacturing, which account for about 12 percent of the U.S. economy, was on a solid footing, thanks to strong domestic and global demand. But the tariffs, a shortage of skilled workers and capacity constraints could slow momentum.

In a third report on Wednesday, the Commerce Department said factory goods orders increased 1.2 percent in February amid strong demand for transportation equipment and a range of other products, nearly unwinding January’s 1.3 percent decline. Orders surged 7.9 percent on a year-on-year basis in February.

The department revised February orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans, to show them rising 1.4 percent instead of the 1.8 percent jump reported last month.

Orders for these so-called core capital goods fell 0.3 percent in January. Shipments of core capital goods, which are used to calculate business equipment spending in the gross domestic product report, increased 1.4 percent in February as reported last month.

“While a trade war could devastate the economy, conditions right now are quite good,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. 

Reporting by Lucia Mutikani; Editing by Andrea Ricci and Chizu Nomiyama

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