Weather restrains U.S. private hiring, services sector growth

WASHINGTON (Reuters) - U.S. private employers added fewer workers than expected in February and services sector growth slowed, the latest signs that severe weather continues to be a drag on the economy.

The ADP National Employment Report showed on Wednesday that private payrolls increased by 139,000 jobs last month. January's job count was revised sharply down to 127,000 from the previously reported 175,000.

Last month's increase was below economists' expectations for a gain of 160,000 jobs.

"Bad winter weather, especially in mid-month, weighed on payrolls. Job growth is expected to improve with warmer temperatures," said Mark Zandi, chief economist at Moody's Analytics in West Chester, Pennsylvania.

Moody's Analytics jointly develops the report with payrolls processor ADP.

The report was released ahead of the government's comprehensive employment report on Friday. With unusually cold weather blamed for the weak private sector hiring, the report raised the prospect of a third straight month of sub-par nonfarm payrolls gains in February.

"This report provides some further confirmation of our expectation for a very weak showing in Friday's employment report as a result of the reference period for payrolls coinciding with the last snow storm," said Millan Mulraine, deputy chief economist at TD Securities in New York.

"We continue to believe that the underlying momentum in the economy remains favorable, and we look for the pace of employment growth to rebound meaningfully in the coming months."

Employers probably added 150,000 workers to their payrolls last month, according to a Reuters poll of economists, up from the similarly weather-depressed levels of 113,000 in January and 75,000 in December.

U.S. stocks were little changed at the open after two days of sharp swings. The dollar also was flat, while prices for U.S. Treasury debt were marginally lower.

SERVICES SECTOR GROWTH SLOWS

In a separate report, financial data firm Markit said its final service sector purchasing managers' index fell to 53.3 last month from 56.7 in January.

A reading above 50 signals economic expansion, and the result was better than Markit's preliminary "flash" reading of 52.7 released last week.

While employers in the service sector, which accounts for about three-quarters of the U.S. labor market, continued to add workers, the pace was the slowest in 11 months.

This winter has been colder than usual, with severe snowstorms affecting large parts of the Northeast, Midwest and Upper Midwest of the country, and the Southeast has experienced unusual ice storms in recent weeks as well.

Chris Williamson, chief economist at Markit, said the rate of growth was estimated to have held steady from January when excluding the weather impact.

"There are therefore strong grounds to believe that the underlying health of the economy remains sound and that growth will pick up again," he said in a statement.

(Reporting by Lucia Mutikani, Rodrigo Campos and David Gaffen; Editing by Andrea Ricci)