NEW YORK – U.S. companies added more jobs than expected in September, while activity in the vast services sector picked up, suggesting the economy remained on track for modest growth.
The ADP National Employment Report showed private employers added 162,000 jobs in September. While the gain topped economists' expectations, it was still fewer than the 189,000 new hires seen in August.
Separate data showed the Institute for Supply Management's purchasing managers index for the service sector rose to its highest level since March at 55.1 from 53.7 as new orders accelerated.
"It looks more like things are heading in the right direction. It is this new reality - we don't have robust growth, we just have very moderate growth," said William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Massachusetts.
The ADP report comes ahead of the U.S. Labor Department's more comprehensive employment report due on Friday which includes both public and private sector employment.
That report is expected to show job growth improved slightly, with employers adding 113,000 jobs. Private-sector payrolls are seen rising by 130,000.
Analysts often refer to the ADP report to fine-tune their expectations for Friday's Labor Department payrolls numbers, though it is not always accurate in predicting the outcome.
In the past six months, the ADP report has exceeded the government's private payrolls numbers by an average of just over 50,000 according to Barclays. August's initial figures from ADP overshot by 98,000.
Some economists said Wednesday's data did not alter their forecasts, given the recent divergence.
The weak economic recovery and high unemployment rate have been a focal point of the U.S. presidential campaign leading up to elections in a little over a month from now.
A televised debate Wednesday night will provide President Barack Obama and Republican challenger Mitt Romney with the opportunity to challenge each other directly on economic issues.
The economy grew at just 1.3 percent in the second quarter and economists believe the recovery will remain sluggish, though it should avoid another contraction.
"While the economy isn't plunging into recession, it still isn't creating enough jobs to drive the unemployment rate lower either," wrote Paul Ashworth, chief U.S. economist at Capital Economics.
Small businesses - firms with fewer than 50 workers - added half of the jobs in September, according to ADP, with 81,000 new workers. Large companies with 500 or more workers added 17,000 jobs, while companies in the middle created 64,000 jobs.
The increase in private payrolls in August was revised down to 189,000 from the previously reported 201,000. July's rise was also revised down, to 156,000 from 173,000.
Last month the Federal Reserve launched an aggressive new plan to bolster the economy, saying it will buy $40 billion in mortgage-backed securities per month until the outlook for the job market substantially improves and as long as inflation remains contained.
US SERVICE SECTOR EXPANDS FASTER
ISM's forward-looking new orders index jumped to 57.7 from 53.7, but growth in employment eased to 51.1 from 53.8. Exports also waned to 50.5 from 52.
Services firms - which range from agriculture to real estate companies - avoided the contraction that hit their manufacturing counterparts over the summer.
The resiliency was also in contrast to data from abroad, which showed the decline in euro zone service sector activity quickened last month, while China's services sector expansion slowed to nearly a two-year low.
U.S. stocks were modestly higher in mid-morning trade, while Treasuries prices weakened and the dollar hit a fresh two-week high against the yen.
Separate data showed demand for mortgage refinancing surged more than 19 percent last week as interest rates tumbled to new record lows in the wake of the Fed's actions, referred to by market watchers as "QE3".
More people were also looking to buy a home, with purchase applications rising nearly 4.0 percent.
"While we still think that QE3 will have only a small impact on the wider economy, this demonstrates that monetary policy isn't completely ineffective," said Ashworth.
(Additional reporting by Richard Leong)