By Edward Krudy and Leah Schnurr
NEW YORK (Reuters) - Private sector employers added more jobs than expected last month in a sign of steady improvement in the labor market, ahead of the closely watched government's monthly jobs report on Friday.
Economists said the private-sector hiring bodes well for the labor market, though they noted the month-to-month changes in ADP's report are not always good predictors of the Labor Department's larger nonfarm payrolls numbers.
High unemployment remains one of the biggest hurdles for economic recovery with companies still reluctant to hire and cash-strapped states and local governments continuing to cut jobs. Nonetheless, economists see a recovery in the labor market, and independent surveys have pointed to momentum in job creation.
Employers added 217,000 jobs in February, ADP Employer Services reported on Wednesday, above expectations for a rise of 175,000.
"Looking at the ADP numbers over the last five or six months, the trend is clearly toward stronger private sector employment and we should see that trend going forward," said Steve Blitz, senior economist for ITG Investment Research in New York.
January's figure was revised higher by 2,000 to 189,000. ADP also released its annual revisions back to the report's inception in December 2000.
Economists polled by Reuters forecast Friday's nonfarm payrolls report for February will show a rise in private sector payrolls of 190,000 and a rise of 185,000 in overall nonfarm payrolls.
That comes after only a small gain in January after being held down by extreme winter weather; January's gains in private-sector employment were tempered by a decline in government-sector jobs. The ADP report is not affected by weather as the government figures are.
Federal Reserve Chairman Ben Bernanke on Wednesday, in congressional testimony, said a Republican spending cut plan wouldn't cause a big dent to U.S. economic growth but could cost around 200,000 jobs.
Data on Wednesday from a consulting firm showed that the number of planned layoffs by employers rose in February to an 11-month high, led by planned layoffs by the government and non-profit sector.
ADP's figures, however, were underpinning support for views that the labor market is strengthening.
The data reinforced Tuesday's release from the Institute for Supply Management, or ISM, that showed manufacturing companies' willingness to hire improved at the strongest pace in decades.
"The rise in ADP in February, taken with other indicators like claims and (ISM) employment, is consistent, we reckon, with official private payrolls rising by about 250,000," Ian Shepherdson, chief economist at High Frequency Economics wrote in a research note.
Shepherdson said he now expects overall nonfarm payrolls to rise by 225,000, up from his previous forecast of 200,000.
The ADP data had helped push U.S. stocks higher in mid-morning trade on Wednesday, but the market fell by midday as oil prices surged.
Gains in the service sector helped fuel the rise in private employment, ADP said, along with improvements in the goods producing and manufacturing sectors.
"In our data set, at this point there is just an unambiguous signal that payroll employment has picked up," said Joel Prakken, chairman of Macroeconomic Advisers LLC, which jointly developed the private-sector hiring report with ADP.
ADP's report showed construction employment fell in February, however. Prakken said data in recent months suggests job losses in that sector have bottomed out.
Later on Wednesday, investors will get a snapshot of the health of the U.S. economy when the Federal Reserve's Beige Book of economic conditions is released.
(Editing by Leslie Adler)
