By Lucia Mutikani
WASHINGTON (Reuters) - U.S. companies hired far fewer workers than expected in May, but an acceleration in services sector growth supported views the economy was regaining strength after sagging early this year.
While other data on Wednesday showed the trade deficit hit its widest point in two years in April, a rise in imports to record highs underscored the economy's resilience.
"May job growth may have been a little less than expected but with imports rising, it looks like the economy is moving forward solidly," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
Private employers added 179,000 jobs to their payrolls in May, the ADP National Employment Report showed, compared to 215,000 jobs in April. That was below economists' expectations for a gain of 210,000 jobs in May.
It was released ahead of the government's comprehensive employment report on Friday. The ADP report, however, does not have a good record predicting nonfarm payrolls. A Reuters survey forecast payrolls rising 218,000 after a 288,000 increase in April.
Separately, the Institute for Supply Management said its services sector index rose to 56.3 last month as new orders and business activity jumped. It was the highest reading in nine months and was up from 55.2 in April.
In another report, the Commerce Department said the trade gap increased 6.9 percent to $47.2 billion as imports hit a record high. It was the largest deficit since April 2012 and followed a $44.2 billion shortfall in March.
ANOTHER TRADE DRAG
U.S. financial market were little changed after the data.
When adjusted for inflation, the trade deficit increased to $53.8 billion from $50.9 billion in March, suggesting that trade remained a drag on growth in the second quarter.
Trade subtracted almost a percentage point from first-quarter gross domestic product growth. The economy contracted at a 1.0 percent annual pace in the first three months of the year.
While there are signs GDP growth has since rebounded this quarter, it will probably not top the 3.5 percent rate that many economists are anticipating.
Barclays trimmed its second-quarter GDP growth estimate by one-tenth of a percentage point to a 2.9 percent rate. Morgan Stanley lowered its forecast to a 3.5 percent rate from 4.0 percent.
But the 1.2 percent increase in imports to an all-time high of $240.6 billion pointed to the economy's underlying strength. Imports of automobiles, capital goods, food and consumer goods all hit record highs in April.
"Strong gains in capital and durable goods imports suggest a pickup in economic activity and sustained domestic demand," said Gennadiy Goldberg, an economist at TD Securities in New York.
The trade deficit with the European Union was the largest on record, as was the gap with Germany. Imports from South Korea also touched a record high.
Chinese imports rose 16.3 percent, pushing the politically sensitive trade gap with China to $27.3 billion from $20.4 billion. Overall exports slipped 0.2 percent to $193.3 billion.
Separately, the Labor Department said nonfarm productivity fell at its sharpest pace in six years in the first quarter as harsh winter weather depressed output, leading to a jump in labor-related production costs.
(Reporting By Lucia Mutikani; Additional reporting by Richard Leong in New York; Editing by Andrea Ricci)
