December 5, 2012 / 3:28 PM / 8 years ago

Storm hits hiring in November but service sector grows

NEW YORK (Reuters) - Private-sector hiring took a hit in November due to the impact of storm Sandy on the northeastern United States but the country’s huge services sector continued to expand.

Job seekers speak to recruiters at a job fair sponsored by the New York Department of Labor in New York, June 7, 2012. REUTERS/Keith Bedford

The ADP National Employment Report, which is closely watched as it comes two days ahead of the government’s monthly national employment report, showed that the private sector added 118,000 jobs during the month, below expectations for a gain of 125,000.

The report largely underpinned economists’ forecast for a weak reading in the Labor Department payrolls report on Friday. Economists expect the economy added 93,000 jobs in November, down from 171,000 the month before, according to a Reuters poll.

“It’s close to what the market was expecting. If Friday’s employment report from the U.S. Labor Department comes in similar to this, that would be a good outcome,” said Terry Sheehan, economic analyst at Stone and McCarthy Research Associates in Princeton, New Jersey.

Wednesday’s raft of data, which also included better-than-expected factory orders and productivity, presented a mixed picture of the U.S. economy. That was in part a reflection of cross-currents from Sandy, as well as difficult budget negotiations in Washington aimed at averting the “fiscal cliff,” a series of automatic spending cuts and tax hikes next year.

A report on the U.S. services sector showed a similar slowing in hiring during the month. But forward-looking indicators pointed to faster growth as a rise in new orders and business activity helped offset a slowdown in employment and prices.

The Institute for Supply Management said its services index rose to 54.7 last month from 54.2 the month before. The reading topped economists’ forecasts for growth to 53.5, according to a Reuters survey. In the report, 50 marks the divide between growth and contraction.

“The much larger service side of the U.S. economy remains relatively healthy,” said Joseph Trevisani, chief market strategist at Worldwide Markets in Woodcliff Lake, New Jersey.

“It has so far avoided the contraction in manufacturing but worse is probably coming in the first quarter of next year as the economy continues to slow.”

In a twist to the story of Sandy’s economic impact, some companies reported that relief efforts actually boosted business, if only temporarily, and this may have helped the headline number beat expectations.

Respondents in the ISM survey did, however, suggest that decisions such as hiring are being put on hold due to the uncertainty that the fiscal cliff is generating.

A separate report on Monday showed that the manufacturing sector contracted after two months of growth.

The noisy readings on the economy will make it harder for the Federal Reserve to form a clear picture when it meets next week. The U.S. central bank is widely tipped to announce a fresh round of Treasury bond purchases, avoiding monetary policy tightening to maintain support for the lackluster economy.

U.S. stocks were little changed after the data but rose in volatile trade by midday. The S&P 500 index, a broad measure of U.S. stocks, traded up 0.5 percent.

Also on Wednesday, a report showed new orders received by U.S. factories unexpectedly rose 0.8 percent in October as demand for motor vehicles and a range of other goods offset a slump in defense and civilian aircraft orders.

The Commerce Department also upwardly revised October’s figures on non-defense capital goods orders excluding aircraft in a hopeful sign that the slowdown in business investment in recent months might soon draw to a close.

Economists at Barclays said the strong reading, driven by orders and shipments of capital goods, equipment used to make other things, means the economy will grow faster than expected in the fourth quarter. They raised their gross domestic product growth outlook for the quarter to 2.2 percent from 2 percent.

The report chimed with another release showing U.S. nonfarm productivity increased at a much faster clip than initially thought in the third quarter as businesses held the line on hiring even as output surged, with unit labor costs falling at their fastest pace in almost a year.

With the effects of Sandy out of the way in the months ahead, hiring is expected to return to its previous trend even if more slowly than most would like to see with the employment rate still hovering near 8 percent.

Mark Zandi, chief economist of Moody’s Analytics, who helps compile the ADP report, said underlying jobs growth was closer to 150,000 in November after discounting the impact of the storm as well as seasonal jobs brought forward at the start of the holiday season.

“Abstracting from the storm, the job market turned in a good performance during the month,” he said. “Superstorm Sandy wreaked havoc on the job market in November, slicing an estimated 86,000 jobs from payrolls.”

Zandi said he was seeing little indication that budget negotiations in Washington, aimed at averting the so-called fiscal cliff, were having a significant impact on hiring.

“I don’t sense that businesses have pulled back on their hiring or increased their layoffs as a result of the angst surrounding the fiscal issues,” said Zandi.

The impasse over the fiscal cliff, which could slam the economy to the tune of $600 billion next year, has been blamed for fueling uncertainty and making corporate managers delay business decisions.

Additional reporting by Ellen Freilich; Editing by Clive McKeef, Chizu Nomiyama and James Dalgleish

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