Companies created the most jobs in nearly a year in November, adding to cautious optimism that the country's battered labor market is working its way toward healing.
Better-than-expected housing and regional factory data released on Wednesday reinforced the view that the economy should avoid recession, though growth is unlikely to be brisk.
All of this confirms the economy, after slowing in the late spring and early summer, is back firmly at its 2 (percent) to 2.5 percent growth rate, said Steve Blitz, senior economist at ITG Investment Research in New York.
Even so, Blitz added, Firstly, I need to temper the enthusiasm that these numbers indicate that economic growth is accelerating, and secondly, it's still a very dangerous world out there.
Central banks around the world addressed some of that danger on Wednesday as they acted jointly to provide cheaper dollar liquidity to European banks facing a credit crunch.
The credit crisis in the euro zone is one of the biggest dangers to the U.S. economic recovery that is still highly sensitive to shocks.
Janet Yellen, the vice chair of the U.S. Federal Reserve, said earlier in the week the central bank still has room to ease monetary policy further. The Fed has bought more than $2 trillion in long-term securities in efforts to boost the economy.
CAUTIOUS OPTIMISM ON JOBS
The ADP National Employment Report on Wednesday showed private employers added 206,000 jobs this month, surpassing economists' expectations for a gain of 130,000 jobs. It was the biggest gain since December 2010.
The data set an optimistic tone ahead of Friday's more comprehensive government report on the labor market and some economists raised their forecasts.
So far in the current U.S. economic expansion, the only period of relatively healthy job creation lasted for a few months from late last year to this spring, Ryan Wang, U.S. economist at HSBC Securities USA, wrote in a note.
Today's job gain of 206,000 in November raises the possibility that we may be on the cusp of a similar period of job creation.
The weak labor market remains one of the biggest hurdles for the economic recovery and is a major concern for U.S. President Barack Obama ahead of next year's elections.
Friday's non-farm payrolls report, which includes both public- and private-sector employment, is expected to show a rise in overall non-farm payrolls of 122,000 this month.
While economists often refer to the ADP report to fine-tune their expectations for the payrolls numbers, ADP's track record as a predictor has varied.
Deutsche Bank raised its forecast for Friday to 150,000 from 125,000, while Capital Economics increased its expectations to 140,000 from 100,000.
One economist, however, cautioned that the ADP number has a tendency to overshoot in November and warned against building too much optimism before the Friday report.
A seasonal adjustment quirk typically -- six of the past seven years -- generates November ADP readings well above the underlying trend, Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note.
In 2010 and 2011, ADP was an average of 64,000 better than the prior three-month average, so applying the same margin today suggests the 'real' November ADP number was 140,000.
Shepherdson said he was maintaining his forecast for a gain of 125,000 jobs.
Macroeconomic Advisers' Joel Prakken said he didn't see any evidence of seasonal effects in the day's data.
I don't see any technical or seasonal reason to question the momentum in today's numbers, Prakken told journalists in a conference call. Macroeconomic Advisers jointly developed the report with ADP.
The data helped lift U.S. stocks, but investors were more focused on the moves from the central banks. The three major U.S. stock indexes jumped more than 3 percent, with the blue-chip Dow industrials up more than 400 points.
MIXED BAG ON HOUSING, PRODUCTIVITY
Meanwhile, a separate report showed the number of planned layoffs at U.S. companies edged down marginally in November, though job cuts for the year so far have surpassed 2010's total.
On the housing front, the National Association of Realtors Pending Home Sales Index jumped 10.4 percent to 93.3 from 84.5 the month before. It was the biggest monthly gain since November 2010.
But that report was tempered as separate data showed applications for U.S. home mortgages slumped for the third week in a row last week, hit by a drop in demand for refinancing.
Business activity in the U.S. Midwest grew faster than expected in November, adding to expectations that national manufacturing data should show an uptick in growth when it is released on Thursday.
Separate data showed the rebound in U.S. non-farm productivity growth was not as strong as previously estimated in the third quarter, while wages declined for two straight quarters.
Productivity increased at a 2.3 percent annual rate, the Labor Department said, a downward revision to its previous estimate of 3.1 percent.
(Reporting by Leah Schnurr; Additional reporting by Lucia Mutikani and Jason Lange in Washington; Editing by Jan Paschal)