NEW YORK – Private-sector hiring took a hit in November due to the impact of storm Sandy that ravaged consumers and businesses in the northeastern United States, but the huge services sector continued to expand albeit at a modest pace.
The ADP National Employment Report, which is closely watched as it comes two days ahead of the government's monthly employment report, showed that the private sector added 118,000 jobs during the month, below expectations for a gain of 125,000.
The report largely confirmed economists' forecast for a weak reading in the Labor Department payrolls report on Friday. Economists expect the economy added 93,000 jobs in November, down from 171,000 the month before, according to a Reuters poll.
"It's close to what the market was expecting. If Friday's employment report from the U.S. Labor Department comes in similar to this, that would be a good outcome," said Terry Sheehan, economic analyst at Stone and McCarthy Research Associates in Princeton, New Jersey.
A separate report on the U.S. services sector showed a similar dip in hiring during the month. But forward-looking indicators pointed to faster growth as a rise in new orders and business activity helped offset a slowdown in employment and prices.
The Institute for Supply Management said its services index rose to 54.7 last month from 54.2 the month before, with 50 being the divide between growth and contraction. The reading topped economists' forecasts for growth of 53.5, according to a Reuters survey.
"The much larger service side of the U.S. economy remains relatively healthy," said Joseph Trevisani, chief market strategist at Worldwide Markets, Woodcliff Lake, New Jersey.
"It has so far avoided the contraction in manufacturing, but worse is probably coming in the first quarter of next year as the economy continues to slow."
A separate report on Monday showed that the manufacturing sector contracted after two months of growth.
U.S. stocks were little changed after the data but drifted lower by midmorning. The S&P 500 index, a broad measure of U.S. stocks, traded down 0.4 percent at 1,401.74 points.
Also on Wednesday, a report showed new orders received by U.S. factories unexpectedly rose in October as demand for motor vehicles and a range of other goods offset a slump in defense and civilian aircraft orders, a hopeful sign for the manufacturing sector.
That chimed with another report showing U.S. nonfarm productivity increased at a much faster clip than initially thought in the third quarter as businesses held the line on hiring even as output surged, with unit labor costs falling at their fastest pace in almost a year.
Mark Zandi, chief economist of Moody's Analytics, who helps compile the ADP report, said underlying jobs growth was closer to 150,000 in November after discounting the impact of the storm as well as seasonal jobs brought forward at the start of the holiday season.
"Abstracting from the storm, the job market turned in a good performance during the month," he said. "Superstorm Sandy wreaked havoc on the job market in November, slicing an estimated 86,000 jobs from payrolls."
Zandi said he was seeing little indication that budget negotiations in Washington aimed at averting the so-called "fiscal cliff," a series of automatic tax hikes and spending cuts due in 2013, were having a significant impact of hiring.
"I don't sense that businesses have pulled back on their hiring or increased their layoffs as a result of the angst surrounding the fiscal issues," said Zandi.
The current impasse over the fiscal cliff, which could impact the economy to the tune of $600 billion next year, has been blamed for fueling uncertainty and causing corporate managers to delay business decisions.
(Reporting By Edward Krudy; Editing by Clive McKeef and Chizu Nomiyama)