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U.S. jobs growth points to turnaround Add to ...

The U.S. economy is showing new signs of approaching a velocity that might finally lower the country's destructively high unemployment rate.

Employment services firm Automatic Data Processing Inc.'s latest report on private-sector hiring in the United States said companies created 297,000 jobs in December, more than three times greater than November's increase and significantly more than Wall Street analysts said they were expecting.

The ADP report was a positive omen ahead of Friday's more comprehensive survey of the state of the United States jobs market by the Labour Department, sending stocks and the dollar higher. A separate report Wednesday said U.S. services firms, which account for almost 80 per cent of the country's gross domestic product, expanded at the fastest pace since March, 2009, in December, offering further evidence that the world's largest economy is starting 2011 with new-found momentum.

Combined, the data raise hope that the U.S. economy has reached a turning point where employers finally begin in a meaningful way the long process of replenishing the millions of jobs lost during the recession

The Standard & Poor's 500-stock index rose 0.5 per cent and the Dow Jones industrial average increased 0.3 per cent. Both indexes erased losses after the ADP report came out. The prospect of a jolt to demand from tens of thousands of U.S. consumers swapping jobless benefits for paycheques gave a lift to the loonie on the prospects of Canada gaining from increased trade. The currency's move was impressive because the U.S. dollar strengthened against most other currencies Wednesday.

Many economists cautioned against reading too much into the latest data releases. Minutes of the Federal Reserve's December policy meeting released Tuesday show central bankers hadn't seen enough evidence to change their minds about buying $600-billion (U.S.) in bonds through June to keep interest rates low to support lending.

"The recovery is on," said Steven Ricchiuto, chief economist at Mizuho Securities in New York. "The question that needs to be debated is the strength of that recovery."

Signs of life in the U.S. jobs market have been a long time coming.

The recession ended in June of 2009, but employers remained wary that the recovery was solid enough to justify aggressive hiring. Anecdotal evidence also suggested that executives were reluctant to take on salaries because of political upheaval in Washington that made it impossible to predict the level of taxation and regulation that companies would face in 2011.

At the end of September, non-financial firms held 7.4 per cent of their total assets in cash, the highest percentage since 1959. The unemployment rate in November rose to 9.8 per cent, the highest in eight months, and the U.S. economy had about seven million fewer jobs than it did in 2007, according to Labour Department data.

The ADP report, which is based on data from 340,000 companies employing 21 million people, is an imperfect predictor of the Labour Department's payrolls report. Over the previous six surveys, ADP's initial estimates were closest to the government's first estimate in July, when it understated the official gain in jobs by 29,000, according to Bloomberg News. The ADP estimate was least accurate in October, when it underestimated the employment gain by 116,000.

Despite their reservations about the ADP data, many economists boosted their jobs forecasts Wednesday, saying there was no denying the report signalled increased momentum in hiring.

Economists at Deutsche Bank in New York lifted their estimate on new non-farm payrolls to 150,000 from 100,000, while Avery Shenfeld, chief economist at CIBC World Markets in Toronto, boosted his forecast to 180,000 from 120,000. Mr. Ricchiuto at Mizuho advised his clients in a note that the "whisper number" on Wall Street could rise to 200,000, which is roughly the level of monthly hiring needed to stay ahead of natural increases in the labour market and begin reducing the unemployment rate.

The Institute for Supply Management's non-manufacturing index rose to 57.1 in December from 55.1 in November. A reading greater than 50 implies growth. Nine of 10 subcategories came in above 50, including the business activity index, which jumped to 63.5 from 57, and new orders, which increased to 63 from 57.7. The employment index fell to 50.5 from 52.7 in November.

U.S. employers last month also announced plans to cut 32,004 jobs, the fewest since June of 2000, according to data released Wednesday by Challenger, Gray & Christmas Inc., a Chicago-based outplacement company. The firm said firings were 29 per cent lower than in December, 2009.

Despite his prediction that the Wall Street consensus for Friday's jobs report will drift up to 200,000, Mr. Ricchiuto said he is sticking with his previous prediction that the U.S. economy added 125,000 jobs in December, far below the level needed to make a dent in the jobless rate.

The economy is stronger but, like the Fed, he's waiting for more evidence to convince him business confidence is truly robust. Europe's debt crisis, rising commodity prices and the U.S. government's own fiscal issues remain significant headwinds, he said.

"There are still more things that can affect the economy negatively than there are things that can affect it positively," he said.

 

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