Small companies fuel private sector hiring in May

WASHINGTON - U.S. private businesses added 253,000 jobs in May, a private survey found.

Payroll processor ADP (ADP) said Thursday that the hiring primarily came from companies with fewer than 500 employees. The total hiring is up from 174,000 jobs in April and the 255,000 jobs added in March.

The figure is much higher than economists' forecasts for the federal government's May jobs report, to be released Friday. Analysts predict that report will show 176,000 jobs were added, according to data provider FactSet.

The job gains in the ADP survey were led by big increases in construction, education and health, and professional and business services, which includes high-paying fields such as accounting and engineering.

If Friday's government report on employment comes in as expected, it would be a drop from the robust 211,000 jobs added in April, which showed the U.S. economy strengthening after meager growth in the first three months of the year. 

The nation's jobless rate ticked down from 4.5 in March to 4.4 percent in April, the lowest level since May 2007. A broader measure of unemployment, which counts unemployed people, discouraged workers and those working part-time who can't find full-time work, also dropped to a nearly 10-year low, at 8.6 percent. 

The ADP report covers only private businesses and often diverges from official figures.

Ian Shepherdson, chief economist at Pantheon Economics, noted that the consensus expectation for the government's May figure is "too low." He pointed out that "ADP's number is generated by a model which includes lagged official payroll data and macro variables, including jobless claims and consumer sentiment, which have been strong. It is not simply a count of firms which use ADP for payroll processing."

He added that the federal payroll numbers "are based only on the survey of employers. We think the underlying trend is strong, but we suspect ADP will overstate the May number; our forecast is 210K, which is still a hefty gain, especially as the unemployment rate is already so low."

At Capital Economics, chief U.S. economist Paul Ashworth said, "given the ADP's patchy record as a leading indicator of the official figures, we are happy to stick with our above-consensus 200,000 estimate for nonfarm payrolls."