ADP says small business hiring picks up momentum in May

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Private payrolls firm ADP reported that USA companies added 253,000 jobs last month, much above the 180,000 forecast by analysts.

James Chen, head of reasearch, at Forex.com in Bedminster, New Jersey said he expects a strong jobs report on Friday that would reinforce a Fed rate hike this month.

Trade, transportation and utilities added 58,000 net new jobs last month, up from just 9,000 in March.

The Institute for Supply Management also released a report showing activity in the manufacturing sector unexpectedly grew at a slightly faster rate in the month of May.

Employment is expected to increase by 185,000 jobs in May after jumping by 211,000 jobs in April.

In April, the Labour Department reported an increase of 194,000 private payrolls, compared to the 174,000 in the ADP. Analysts predict that report will show 176,000 jobs were added, according to data provider FactSet.

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Federal Reserve monetary policymakers are watching the labor market closely to determine whether the economy is strong enough for another increase in a key short-term interest rate. ADP small business customers have added an average 90,000 workers per month since January, almost twice the 47,000 added in the last six months of 2016.

"This jobs report will be of critical importance for the Fed, especially since June's FOMC meeting is less than two weeks away", Chen noted. "The rebound in April employment suggests these factors have largely played out and, alongside claims data that show some improvement in the separation side of the market, we look for another month of solid employment growth". "We are less confident in wages, whose growth rate remains soft relative to the sub-5% level of the unemployment rate".

It was the 117th straight week that claims were below 300,000, a threshold associated with a healthy labour market.

That is the longest such stretch since 1970, when the labor market was smaller.

A Labour Department official said claims for California and seven other states were estimated because of the Memorial Day holiday on Monday, which could have distorted the data. The four-week average, a less volatile figure, rose 2,500 to 238,000. Economists polled by Reuters had forecast first-time applications for jobless benefits rising to 239,000 in the latest week. Those companies reduced their payrolls by 11,000 last month after adding 41,000 net new jobs in April.

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