U.S. jobs, services sector data underscore economy's resilience

[December 04, 2014]  By Lucia Mutikani

WASHINGTON (Reuters) - U.S. private companies added workers at a fairly brisk clip in November and the services sector grew strongly, suggesting a slowing global economy is having a limited impact on domestic activity.

Strengthening labor market conditions, however, have yet to spur faster wage growth, other data on Wednesday showed, which could give the Federal Reserve ammunition to maintain its very low interest rate policy for a while.

"With all of the talk about a recession in Japan, possible recession in the euro zone and in Russia, the U.S. economy is looking much more attractive," said Jennifer Lee, a senior economist at BMO Capital Markets in New York.

Payrolls processor ADP said private-sector employment rose by 208,000 last month after increasing by 233,000 in October. Private payrolls have now advanced by more than 200,000 in seven of the last eight months.

The ADP report, which was jointly developed with Moody's Analytics, was released ahead of the government's more comprehensive November employment report on Friday.

Private sector job gains last month were broad-based, though the pace of hiring in both the services and goods-producing sectors slowed a bit. Economists said that did not change their expectations for Friday's report to show a gain of above 200,000 in nonfarm payrolls.

In a separate report, the Institute for Supply Management said its index of services sector activity rose to 59.3 last month from 57.1 in October. The latest reading is just below a post-recession high hit in August.

Any reading above 50 indicates an expansion in activity. New orders and order backlogs increased, while a gauge of export orders rose solidly, defying slowing economic growth in China and the euro zone, as well as Japan's recession.

Evidence of the economy's resilience was backed by the Fed's Beige Book, which found that activity continued to expand in October and November, with lower gasoline prices stimulating consumer spending.

COMPENSATION TEPID

U.S. stocks rose marginally, while prices for U.S. government debt were little changed. The dollar hit a 27-month high against the euro as traders bet that the European Central Bank would decide to pump more money into the euro zone economy at a meeting on Thursday.

A Labor Department report showed compensation per hour increased at a tepid 1.3 percent rate in the third quarter rather than the 2.3 percent pace reported last month, and fell at a 0.9 percent rate in the second quarter instead of rising at a 2.3 percent pace as previously reported.

The steep revisions brought compensation in line with the government's gauge of average hourly earnings and eased fears that wage growth was rising a bit faster than the Fed had expected.

"That implies the Fed may not be facing demands to raise rates anytime soon," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

Wages are one of the key factors that will determine when the Fed will start raising benchmark overnight interest rates, which it has kept near zero since December 2008.

With compensation sluggish, unit labor costs - the price of labor for any given unit of production - fell at a 1.0 percent rate in the third quarter, a further sign of the lack of inflation and profit pressure.

They previously had been reported to have increased at a 0.3 percent pace. Revisions to second-quarter data showed a steeper pace of decline than previously reported.

Most economists expect the Fed to begin bumping rates up around the middle of next year.

(Reporting by Lucia Mutikani; Additional reporting by Dan Burns in New York; Editing by Tim Ahmann and Paul Simao)

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