WASHINGTON -- U.S. companies stepped up hiring in May, a private survey found, evidence that employers remain confident in the economy even after it contracted at the start of the year.
Payroll processor ADP said Wednesday that businesses added 201,000 jobs last month, up from just 165,000 in the previous month. April's increase was the smallest in 1½ years.
"The job market posted a solid gain in May," said Mark Zandi, chief economist at Moody's Analytics, which prepared the report in collaboration with ADP. "Employment growth remains near the average of the past couple of years. At the current pace of job growth, the economy will be back to full employment by this time next year."
The figures suggest that the economy is recovering after it shrank at a 0.7 percent annual rate in the first quarter. On Friday, the government will issue its official jobs report for May. Economists forecast it will show that employers added 227,000 jobs, and the unemployment rate remained at 5.4 percent.
"The relative strength in today's report is an encouraging sign that the labor market, and the economy, is reaccelerating," Dan Greenhaus, chief strategist at brokerage BTIG LLC, said in a note to clients.
The ADP survey covers only private businesses, however, and frequently diverges from the official figures.
Employers added jobs last year at the strongest pace in 15 years, putting 3.1 million people to work, or an average of 260,000 jobs a month. Yet hiring has slowed a bit in 2015, with job gains averaging 194,000 a month through April.
Much of that slowdown occurred in March, when only 85,000 net jobs were created. Hiring rebounded to 223,000 in April, the Labor Department said.
The Federal Reserve is closely watching the health of the job market as it considers when to begin raising the short-term interest rate it controls from nearly zero.
Construction companies added 27,000 jobs, ADP said, the most in four months. That's a sign that developers are ramping up home building, an important driver for the economy.
Manufacturers cut 5,000 jobs, the third straight decline. The drop in factory jobs likely reflects the impact of the stronger dollar, which makes U.S. goods more expensive overseas and cuts into export sales.
Services were the main driver of job growth, adding 192,000 jobs. Those gains were led by shipping, retail, and professional and business services, which include higher-paying industries such as accounting and engineering.
Other recent reports have painted a mixed picture of the economy. Consumers remain cautious and are reluctant to spend their savings from lower gasoline prices, which are about $1 a gallon cheaper than a year ago. On Monday, the government said consumer spending was unchanged in April. Instead, the saving rate rose to 5.6 percent from 5.2 percent.
Yet Americans were willing to spend more on motor vehicles last month. Auto sales rose 2 percent in May to 1.64 million cars and trucks, according to Autodata Corp. That was the fastest sales pace since July 2005.
And a survey of manufacturing firms showed that factory activity grew at a faster pace in May than the previous month, driven higher by more new orders and greater hiring.
Overall, analysts expect the economy will expand at about a 2 percent annual pace in the second quarter. That would leave growth in the first half of the year barely above 0.5 percent, down from a 3.6 percent pace in the second half of last year.
U.S. service firms grew in May at the slowest pace in a year, as both new orders and hiring slipped.
The Institute for Supply Management said Wednesday that its services index fell to 55.7 in May from 57.8 in April. Still, any reading over 50 indicates that services firms are expanding.
The slower growth rate reflects the uneven rebound from a harsh winter, which caused the economy to shrink at an annualized rate of 0.7 percent during the first quarter of 2015. Hiring has continued at a brisk pace, leading many economists to forecast solid growth in the coming months. Yet consumers have been reluctant to part with their paychecks, choosing to save instead of spending in ways that bolster short-term growth.
"The indications are that we have had a slowing or cooling off here," said Anthony Nieves, chairman of Institute for Supply Management's nonmanufacturing business survey committee.
But because the average still points to expansion, economists say that gross domestic product will improve.
"It is still at a level that historically has been consistent with 3 percent GDP growth," said Paul Ashworth, chief U.S. economist at Capital Economics.
Information for this article was contributed by Christopher S. Rugaber and Josh Boak of The Associated Press and by Dean Starkman of the Los Angeles Times.
Business on 06/04/2015