The number of U.S. private-sector jobs surged in December at a rate three times stronger than forecast, a hiring report showed, the most bullish signal in months that a recovery in the world's biggest economy is shifting up a gear.
The ADP Employer Services private-sector jobs report logged its biggest-ever rise on Wednesday. It comes two days ahead of the U.S. government's closely watched and more comprehensive payrolls report for December, spurring many economists to raise their forecasts for that data.
The data sparked a sharp cut in U.S. Treasury debt prices, and the U.S. dollar gained 1.5 percent against the yen, on pace for its biggest one-day gain in more than three months as investors bet on a stronger recovery. Stocks and crude oil futures reversed losses and headed higher.
The news is a boost for U.S. President Barack Obama, whose administration has struggled to create jobs as the economy started to recover from the huge hit it took in the financial crisis.
Sometimes numbers come as bolts from the blue; this is one of them, said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
Nothing in any other indicators of the state of the labor market last month -- jobless claims, help wanted, surveys -- suggested anything like this was remotely likely.
Private employers added a surprising 297,000 jobs last month, ADP said, up from a gain of 92,000 in November. It was the largest jump recorded by ADP, whose data goes back to 2000.
In another sign of economic strength, an industry group on Wednesday reported its gauge of the massive U.S. services sector reached its highest level in more than four years.
The Institute for Supply Management said its index of national services activity rose to 57.1 in December from 55.0 in November -- better than economists' median forecast of 55.6.
The data was the latest in a series, from trade to retail sales, suggesting the U.S. recovery is gaining speed.
Yet another number that beats consensus and keeps the positive sentiment on the economy alive with some momentum going into the new year, Sean Incremona, an economist at 4Cast Ltd in New York, said of the service sector data.
Analysts reacted swiftly to the surprising ADP data. They now expect a median increase in U.S. nonfarm jobs of 175,000 in December, according to a revised Reuters poll, up from the previous 140,000 expectation.
Adding to the rosy employment picture, the number of planned layoffs at U.S. firms fell last month to the lowest level in 10 years, according to a report by consultants Challenger, Gray & Christmas Inc.
And a survey of chief executives of small companies showed a majority planned to add employees in 2011 for the first time in three years, according to small business group Vistage.
Tempering some of the optimism, an industry group said applications for U.S. home mortgages ebbed in the last couple of months of 2010, with loan rates hovering around their highest levels in seven months.
The housing market, along with high unemployment, has hindered the U.S. economic recovery from a recession that spanned from late 2007 to mid 2009, the longest since World War Two.
SMALL AND MEDIUM-SIZED FIRMS
The ADP report, developed jointly with Macroeconomic Advisers LLC, is often used by economists to fine tune their forecasts for the payrolls numbers, though it is not always accurate in predicting the outcome.
Small and medium-sized firms drove the hiring, according to the jobs data. The vast majority of the increase was in the service-providing industries, where 270,000 new jobs were created, while the goods-providing industries contributed 27,000 jobs. Manufacturing was up by 23,000 jobs.
Despite the reaction in financial markets, some analysts were not impressed.
Barclays analyst Theresa Chen advised taking the report with a grain of salt: The ADP data often do not predict well the changes in non-farm payrolls within the same period, so we are not revising our payroll forecast.
Obama's failure to significantly lower the unemployment rate was seen as a key reason that his Democratic party lost control of the U.S. House of Representatives in November's election. Republicans formally took power in the House on Wednesday.
Economists polled by Reuters forecast that the unemployment rate would be at 9.7 percent in Friday's government report.
On Tuesday, minutes from the Federal Reserve's December policy meeting showed the U.S. central bank felt the economy still needed help despite some signs of strength. There was little appetite to trim the Fed's $600 billion bond-buying plan, the minutes show.
The strong ADP report could again ramp up the debate over the Fed's bond-buying and near-zero interest rates policy.
Traders are now pricing in a Fed rate hike in November 2011, Fed fund futures showed Wednesday. When the bond-buying plan was announced in November, traders expected rates to stay rock-bottom until April 2012.
You cannot ignore the strength of this report, said Tom Porcelli, a U.S. economist at RBC Capital Markets. With small business now beginning to start to ramp up hiring, it's safe to feel better about the labor backdrop.
(Reporting by Jonathan Spicer; Additional reporting by Emily Flitter, Ann Saphir and Reuters bureaus; Editing by Padraic Cassidy)