US private employers hired more workers than expected last month and demand for a range of factory goods was solid in January, hopeful signs for the US economy as it deals with higher taxes and deep government budget cuts.
The reports on Wednesday suggested economic activity picked up after it stalled in the final three months of last year.
“They provide some signs that the economy is doing a little bit better,” said Michael Strauss, chief economist at Commonfund in Wilton, Connecticut.
Private employers added 198,000 jobs to payrolls last month, the ADP National Employment Report showed, handily beating economists’ expectations for an increase of 170,000. There were solid gains in construction, where payrolls rose by 21,000.
Adding to the report’s firm tone, January’s count was revised to show 23,000 more jobs added than previously reported. The report is jointly developed with Moody’s Analytics.
“It feels like underlying job growth continues to improve, and at the current pace, this should be enough to start bringing down unemployment,” said Mark Zandi, chief economist at Moody’s Analytics. The jobless rate is currently at 7.9 percent.
“In a really rip-roaring economy, we’d be creating closer to 300,000 jobs a month or a bit north of that. So we’re not there yet, but we’re moving in the right direction,” he said.
A separate report from the US Department of Commerce showed orders for manufactured goods dropped 2 percent, weighed down by a plunge in demand for transportation equipment.
However, orders excluding the volatile transportation category increased a healthy 1.3 percent, pointing to underlying strength in a sector that carried the economy out of the 2007-2009 recession.
The department also said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased by a more robust 7.2 percent in January instead of 6.3 percent, as it reported last week.
That optimism was also captured in the US Federal Reserve’s Beige Book, which showed growth improving gradually in January and early last month, largely thanks to a broad-based housing market recovery.
The signs of underlying strength in the economy are encouraging, given a recent tightening in fiscal policy.
A 2 percent payroll tax cut ended and tax rates went up for wealthy Americans on Jan. 1, hurting consumer spending.
In addition, US$85 billion in federal budget cuts, known as the “sequester,” started on March 1, and could cut as much as 0.6 percentage point from growth this year.
Stocks on Wall Street ended mostly up on the data, with the Dow Jones industrial average setting a record high for a second day. The DJIA added 0.3 percent to close at 14,296.24, and the S&P gained 0.11 percent to 1,541.46, just 1.5 percent below its own record close.
“When you reach a record high, it triggers introspection about whether we’re overvalued, but I don’t expect a pullback because the reasons we’ve climbed are still in place,” said David Joy, chief market strategist at Ameriprise Financial in Boston. “The market has the opportunity to move higher until there’s evidence those factors will die out.”