Day before monthly employment report, signs of hiring mount

WASHINGTON -- The number of people seeking unemployment benefits fell further last week, and a measure of private-sector hiring indicated December's job growth may have been twice as strong as expected, as signs that businesses are adding staff mount before Friday's offical report on employment.

On Friday, the Labor Department is scheduled to report on employment conditions in December. Economists predict that employers added 150,000 net jobs, which would be an improvement from November's gain of 120,000. Government agencies are expected to shed jobs, while private companies grow.

It's a monthly report that investors and policymakers pore over for days for hints about the economy's health, especially when there are questions about its vitality. In November, the unemployment rate fell to 8.6% from 9% a month earlier. Still, about half that decline occurred because many of the unemployed gave up looking for work. When people stop looking for a job, they're no longer counted as unemployed.

Weekly applications for unemployment insurance dropped by 15,000 to a seasonally adjusted 372,000 last week, the Labor Department said Thursday. That's 11% lower than the same time last year. The payroll processing company ADP reported that private businesses added 325,000 workers in December, far more than the 150,000 that J.H. Cohn economist Patrick O'Keefe said is the consensus forecast for private-sector growth. Separately, the National Federation of Independent Business reported that small-company owners' optimism about hiring is at the second-highest point since 2007.

"This is the fourth or fifth month of acceleration," said Joel Prakken, chairman of consulting firm Macroeconomic Advisers, which runs the ADP survey. "It's unambiguous.''

The trouble with the ADP number may be in the seasonal adjustment, Prakken said. ADP purges its survey each December to eliminate workers who actually left their jobs earlier in the year but were kept on their former employers' payroll systems so they can be sent tax forms, he said. The imprecision involved in adjusting the figures to reflect who actually quit or was fired in December may have caused an exaggeration of the month's gains, he said, but they should still be above the consensus forecast for monthly job growth.

"I'd be cautious about this number," Prakken said. "But would I totally discount it? I don't think I would."

NFIB reported that total employment in small businesses declined slightly month, based on its survey of small business owners, but the number of small businesses hiring or expecting to hire rose. ADP said small-business hiring accounted for 148,000 of the new jobs it reported.

"Reports of new job creation should pick up a bit in the coming months," NFIB chief economist William Dunkelberg wrote in the federation's report.

The four-week average of new unemployment claims, which smooths out fluctuations in week-to-week job losses, fell to 373,250 — the lowest level since June 2008.

When applications drop below 375,000 — consistently — they generally signal that hiring is strong enough to reduce the unemployment rate.

In a separate report out Thursday, the activity of U.S. service companies, which employ 90% of the workforce, expanded at a faster pace in December, helped by solid holiday sales and an economy that picked up strength in the final months of the year.