U.S. private employers cut more jobs than expected last month and the vast services sector contracted again, stoking concern about the strength of a U.S. recovery, data showed on Wednesday.
In addition, U.S. firms planned to increase layoffs in July for the first time in six months, another report showed, increasing investor anxiety about the government's unemployment report for July due on Friday.
We're looking at a U-shaped recovery, which means getting off the bottom is going to be a lot more difficult than people are anticipating in the market, said Doug Roberts, chief investment strategist at Channel Capital Research in Shrewsbury, New Jersey.
Wall Street stocks fell, snapping a four-day winning streak, while the dollar dipped against the Japanese yen but rose against the euro.
American private employers cut 371,000 jobs last month, according to the ADP Employer Services report, jointly developed with Macroeconomic Advisers LLC.
That was less than 463,000 cuts in June but above the 345,000 job losses economists had expected for July.
Outplacement consultancy Challenger, Gray & Christmas, Inc. also reported that U.S. firms' layoff plans in July surged 31 percent compared with June, which had marked a 15-month low.
Labor market strains were evident in the services sector, which comprises 80 percent of U.S. economic output. The Institute for Supply Management said its services index fell to 46.4 last month from 47.0 in June.
Economists had expected the number to rise to 48.0, closer to the dividing line between growth and contraction at 50. The last time the index was above 50 was August of 2008.
This is not good news for the labor market, given the disappointing ADP reading, said Richard DeKaser, president of Woodley Park Research in Washington. These are not good numbers in the same day.
A Reuters poll of economists predicted Friday's payrolls report, which includes private and public employment, would show 320,000 job cuts in July, down from 467,000 in June.
The White House said the Labor Department report will show hundreds of thousands more lost jobs in July.
Recent data has painted a mixed picture of U.S. economic health, with the ISM's manufacturing index earlier this week showing a slower-than-expected contraction in July.
Investors gleaned a glimmer of hope from a Commerce Department report showing new orders at U.S. factories unexpectedly rose in June, though DeKaser said that was driven by factories eking out gains due to low inventories.
He added, there is a clear lag in the recovery in the services sector, which reflects the anemic consumer part of the economy.
In a separate report, the Mortgage Bankers Association said demand for U.S. home loans rose last week as a three-week low in 30-year fixed mortgage rates boosted applications for refinancing.
That came a day after U.S. data showed pending home sales jumped 3.6 percent in June, adding to hope that U.S. home prices may finally be nearing the end of a precipitous fall.
Most folks are hopeful, based on all the numbers we've been seeing, that we've got a floor here and we're going to start seeing a long, slow recovery. said Jonathan Corr, chief strategy officer at Pleasanton, California-based mortgage software provider Ellie Mae.
But hopes on this front also came with a caveat, and analysts said a swift rebound from the housing market's worst slump since the Great Depression is not on the horizon.
Demand for mortgages to buy new homes -- rather than to refinance existing debt -- remains weak, with purchase loan requests rising just 0.9 percent last week, the MBA said.
We can't march around in victory yet, Corr said, but we're starting to see the light at the end of the tunnel.
(Additional reporting by Chris Reese, Lynn Adler, Mary Rowe and Richard Leong; Editing by Kenneth Barry)