WASHINGTON (Reuters) — U.S. private companies added workers at a brisk clip in December, pointing to underlying strength in the economy despite signs that growth slowed sharply in the fourth quarter.
Other data on Wednesday showed a slight moderation in services sector activity last month. The trade deficit also narrowed in November as imports of goods fell to their lowest level in nearly five years, a sign of softening domestic demand amid an effort by U.S. businesses to trim bloated inventories.
The services and trade reports added to weak construction and auto sales data in suggesting that gross domestic product growth slowed to a crawl in the final three months of 2015.
The economy is battling the impact of a buoyant dollar, inventory bloat and relentless spending cuts by energy firms, which have been hurt by lower oil prices.
Payrolls processor ADP said private-sector employment rose by 257,000 last month, the largest gain since December 2014, after increasing by 211,000 in November.
"The labor markets are finishing the year with a bang, that's for sure," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.
However, the ADP data tends to overstate job gains in December because of a year-end accounting quirk. The ADP report, which was jointly developed with Moody's Analytics, was released ahead of the government's more comprehensive December employment report on Friday.
According to a Reuters survey of economists, nonfarm payrolls probably increased 200,000 last month, on top of the 211,000 jobs added in November. The unemployment rate is seen unchanged at a 7-1/2-year low of five per cent.
Labor market strength suggests the economy's fundamentals remain healthy, and some economists say that could keep the Federal Reserve on course to raise interest rates again in March.
The U.S. central bank last month raised its benchmark overnight interest rate by 25 basis points to between 0.25 per cent and 0.50 per cent, the first rate increase in nearly a decade.
In a separate report, the Institute for Supply Management said its non-manufacturing index fell to 55.3 per cent in December from a reading of 55.9 per cent in November. A reading above 50 indicates expansion in the vast services sector.
U.S. stocks were trading sharply lower, while prices for U.S. government debt rose. The dollar was flat against a basket of currencies.
TRADE DEFICIT SHRINKS
In a third report, the Commerce Department said the trade deficit fell five per cent to $42.4 billion (all dollars US) in November.
Despite the shrinking trade gap, declining exports are the latest indication that economic growth braked sharply in the fourth quarter. While inventories likely accounted for much of the drop in imports, the weakness could also be pointing to a slowdown in domestic demand, which was flagged by weak December automobile sales.
Trade, which subtracted 0.26 percentage point from gross domestic product in the third quarter, is likely to have remained a drag on growth in the fourth quarter.
Economists this week slashed their fourth-quarter GDP growth estimates by as much as one percentage point to as low as a 0.5 per cent annual pace, which also accounted for the impact of unseasonably warm weather on sales of winter apparel and other merchandise.
The economy grew at a two per cent annual rate in the third quarter. Businesses accumulated a record pile of inventory in the first half of 2015, which was unmatched by demand, leaving warehouses bulging with unsold goods.
Imports of goods dropped two per cent to $183.5 billion in November, the lowest level since February 2011. Imports of industrial supplies and materials were the weakest since May 2009. There were also declines in imports of capital and consumer goods.
Lower oil prices as well as increased domestic energy production also helped to curb the import bill. The price of petroleum averaged $39.24 per barrel in November. That was the lowest level since February 2009 and down from $40.12 in October and $82.92 in November 2014.
Goods exports slipped 1.1 per cent to $122.2 billion in November, the lowest level since June 2011.
Exports of industrial supplies and materials hit their lowest level in five years, while petroleum exports were the weakest since December 2010. Exports of non-petroleum products dropped to their lowest level since June 2011.
The decline in exports to the United States' main trading partners was nearly broad-based in November. But the politically sensitive U.S.-China trade deficit fell 5.2 per cent to $31.3 billion in November.
A fourth report from the Commerce Department showed new orders for factory goods fell in November and inventories declined for a fifth straight month.