Private-sector payroll growth slowed sharply in May, falling to the lowest level in eight months and prompting some economists to lower forecasts for job growth in Friday's government report.

The ADP Employment Services report is the latest in a string of data suggesting economic growth remained sluggish early in the second quarter after hitting a soft patch in the first months of the year. The economy grew at a tepid 1.8 percent annual rate in the first three months of the year, softer than analysts originally anticipated.

This only adds fuel to the argument that the slowdown story is here in the U.S., said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York.

This is exactly what we do not want when other significant data shows things are slowing down as well.

The ADP report showed private employers added a scant 38,000 jobs last month, falling from a downwardly revised 177,000 in April and well short of expectations for 175,000. It was the lowest level since September 2010.

The report boded poorly for the key U.S. non-farm payrolls report at the end of the week. Credit Suisse lowered its estimate for Friday's employment number to 120,000 from its previous forecast of 185,000 and its private payroll estimate to 135,000 from 200,000.

ADP's number has been weaker than the government's private payrolls figure for 12 of the last 14 months, making Friday's government numbers likely to come in above ADP's report, Credit Suisse said.

The Labor Department report is expected to show a rise in overall non-farm payrolls of 180,000 in May, slowing down from a gain of 244,000 the month before, according a Reuters poll. Private payrolls are expected to come in at 205,000.

The ADP report is jointly developed with Macroeconomic Advisers LLC, whose chairman said he expects Friday's figure to disappoint.

U.S. stock indexes opened lower open following the ADP report.

A separate report showed the number of planned layoffs at U.S. firms rose modestly in May with the government and non-profit sectors making up a large portion of the cuts.

Employers announced 37,135 planned job cuts last month, up 1.8 percent from 36,490 in April, according to a report from consultants Challenger, Gray & Christmas, Inc.

The housing market, meanwhile, continued to struggle as a report from an industry group showed applications for U.S. home mortgages fell last week, pulled lower by a decline in refinancing demand.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 4 percent in the week ended May 27.

(Additional reporting by Julie Haviv; Editing by Padraic Cassidy)

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