The U.S. private sector added far fewer jobs than forecast in April, ADP reported on Wednesday, giving the market a pause as it awaits Friday's government employment report.
The New Jersey-based ADP Employer Services reported an increase of 119,000 jobs in April. Economists polled by Thomson Reuters had forecast a gain of 177,000 jobs. Also, March's total was revised down 8,000 to 201,000.
Obviously, the weak ADP reading means that there are now clear downside risks to our estimate that the official non-farm payroll employment figures will show a 175,000 gain (data due on Friday), Paul Ashworth, chief U.S. economist for ADP, said in a statement.
Indeed, it is possible we could see a repeat of March, when payrolls increased by only 120,000. Overall, disappointing, although even if payrolls did increase by only 120,000 again, we would still expect employment growth to start picking up again in a few more months.
In morning trading, the S&P 500 fell 0.51 percent, while the Dow Jones Industrial Average futures gave up 0.36 percent. Treasuries rose, pushing the yields on the 10-year notes down to 1.91 percent.
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ADP said employment in the service-providing sector rose 123,000 in April, after rising 158,000 in March. Employment in the goods-producing sector declined by 4,000, while manufacturing employment dropped 5,000 jobs, the first loss since September of last year.
Construction employment also fell by 5,000, the first decline in seven months, following healthy gains during the unusually warm winter months. Employment in the financial services sector increased by 13,000 in April, marking nine consecutive monthly gains there.
There is some evidence that unusually warm weather boosted employment during the winter months, with a payback now coming due, Joel Prakken, chairman of Macroeconomic Advisers LLC, said in a statement.
Small businesses -- those with less than 50 workers -- created 58,000 jobs.
As a preliminary gauge of private payrolls, ADP has a mixed track record compared to the official Labor Department numbers released on the first Friday of each month.
ADP's initial figures for March showed a gain of 209,000, while the Labor Department said companies added 121,000 workers.
The consensus for Friday's government report is for nonfarm payrolls to increase by 175,000, with private sector job growth to accelerate to 178,000.
The modest rise in private employment suggests that the national unemployment rate probably did not decline in April unless there was a notable decline in the labor force, Prakken said.