(Reuters) - U.S. private employers ramped up their hiring in June, as a report by a payrolls processor on Wednesday showed businesses adding the greatest number of workers in six months, a further sign of labor market improvement that may allow the Federal Reserve to raise interest rates later this year.
The ADP National Employment Report showed 237,000 private-sector jobs were created in June, handily exceeding the median expectation among economists surveyed by Reuters for a gain of 218,000 jobs.
May private payroll gains were revised up to 203,000 from an originally reported 201,000 increase. June's gain marked the third straight month of improvement since the pace of hiring had slumped to a 14-month low back in March as the economy stalled in the first quarter.
"The U.S. job machine remains in high gear," Mark Zandi, chief economist for Moody's Analytics, said in a statement. "The
current robust pace of job growth is double that needed to absorb the growth in the working age population."
The ADP report, jointly developed with Moody's Analytics, comes ahead of the U.S. Labor Department's more comprehensive non-farm payrolls report on Thursday, which includes both public and private-sector employment.
Economists polled by Reuters are looking for total U.S. employment to have grown by 230,000 jobs in June, down from May's 280,000 increase. The unemployment rate was forecast to slip to a seven-year low of 5.4 percent from 5.5 percent.
SMALL BUSINESS, SERVICES LEAD
The improvement in the ADP report was led by small businesses and the services sector. Employers with fewer than 50 workers added 120,000 jobs last month, while services providers hired 225,000 people, the most since November.
Other sectors showing strength included professional and business services, which added 61,000, also the most since December, and trade, transportation and utilities, which added 50,000 to keep pace with May's gains.
The ADP figures provided a catalyst for a further drop in U.S. Treasury security prices, driving their yields, which move in the opposite direction, to their highs of the day. It also helped fuel additional strength in the dollar.
Financial markets are in the process of gauging whether the Fed will have a firm enough economic foundation to raise interest rates later this year for the first time in nearly a decade. The labor market has been one of the brighter spots recently coming out of a first quarter in which U.S. economic output contracted by an annual rate of 0.2 percent, the second year in a row in which the economy has stumbled out of the gate.
Many economists expect the Fed to raise its target for the federal funds rate as early as September, although market-based forecasting tools suggest lift off may not occur until late in the year or even in 2016.
Earlier on Wednesday, the Mortgage Bankers Association reported a drop in the latest week in applications for home purchase loans and refinancings of existing mortgages. That coincided with an increase in the average rate on a 30-year fixed-rate mortgage to 4.26 percent, the highest level since last October.
Other data due out on Wednesday include the Institute of Supply Management's monthly survey on the manufacturing sector, which is forecast to show improvement in June from May. A report due out on construction spending for May is expected to show a deceleration in growth in that sector from April's level, which had been the highest in nearly three years.
Also on Wednesday, U.S. car makers will report automobile sales for June, which are expected to pull back slightly from May's blistering rate, which had been the highest since July 2005.
(Writing by Dan Burns; Reporting by Richard Leong; Editing by Chizu Nomiyama)
