Businesses added 298,000 jobs last month, ADP says

A labor-market survey on Wednesday provided the latest signal that job growth is strengthening along with business confidence.

Payroll processor ADP said businesses added 298,000 private-sector jobs in February, significantly above the 189,000 forecast. The figure was the latest positive reading on the labor market following a strong hiring report from LinkedIn, low jobless claims, and a surge in service-sector activity.

Together, the indicators are stoking expectations for Friday’s closely watched survey from the Labor Department, which counts both private and government jobs. That report is projected to show 190,000 payroll gains, according to a Bloomberg survey of economists.

The data “indicate that the U.S. job market is in very good shape at the beginning of 2017,” Gus Faucher, an economist with PNC Financial Services Group, wrote in a note to clients. “The tighter job market will support income gains and consumer spending this year.”

If it were sustained, stronger-than-anticipated job growth would push the unemployment rate down more rapidly, likely spurring faster interest rate hikes by the Federal Reserve.

After the ADP report, Ian Shepherdson, chief economist of Pantheon Macroeconomics, raised his forecast for Labor Department's tally to 250,000 job gains from 200,000. While average monthly employment gains fell to 180,000 in 2016 from 226,000 the prior year, Shepherdson said he expected 200,000-plus advances on average "for the foreseeable future." That view differs from the belief of many economists that the low 4.8% unemployment rate is supplying employers with fewer workers, tempering hiring.

Barclays economist Rob Martin said the firm hasn’t changed its prediction for a solid 200,000 new jobs, but high-flying business and consumer confidence increase the chances of a stronger performance as firms hold on to workers in a tightening market. The job total is a net figure that combines new hires and layoffs.

“If you expect things to pick up in the near-term, there’s no need to lay off right now,” Martin said.

Friday’s payroll report had been viewed as key in cementing an anticipated interest-rate hike by the Fed next week. After officials there recently signaled that a rate increase is all but certain, economists have said it would take an unusually anemic showing to give them pause. In fact, outsize gains in the Labor Department's report could prompt the Fed to raise rates again in June. Fed fund futures markets show the odds of such a move are 46%. But before the report was released, O'Sullivan said a second straight booming payroll count could coax the Fed to act again. The central bank lifted its benchmark rate by a quarter percentage point in December to a range of 0.5% to 0.75%, just its second hike in a decade.

ADP attempts to foreshadow the Labor Department's private-sector total, and while it often differs significantly, it came within 9,000 in December and January. In January, the department reported a healthy 227,000 new jobs. The data, however, includes government payrolls and President Trump’s federal hiring freeze probably held down employment gains by several thousand in February, says economist O’Sullivan.

ADP said construction companies added 66,000 jobs last month, a likely reflection of relatively mild winter weather. Professional and business services also added 66,000 jobs, while the leisure and hospitality industry added 40,000; health care, 38,000; and manufacturing, 32,000. The strong gains by the nation’s factories are a sign that the oil industry's rebound is bolstering manufacturing jobs.

“Unseasonably mild winter weather undoubtedly played a role” in the blockbuster totals, said Mark Zandi, chief economist at Moody’s Analytics, which helps ADP compile the report. “But near-record-high job openings and record-low layoffs underpin the entire job market.”

Other labor market indicators for February have been encouraging. LinkedIn, the largest professional network, said Wednesday its data showed that January and February were the strongest consecutive months for hiring since August and September 2015, prompting a tweet about jobs from Trump.

Initial jobless claims, a gauge of layoffs, has been near four-decade lows, and an index of service sector employment revealed faster growth in February.