ADP: December Payrolls Spike 297,000

(ADP article updated with additional information.)

NEW YORK ( TheStreet) -- Private sector job growth accelerated significantly in December, led by the service sector, encouraging hopes that businesses may be finally hiring again.

On a seasonally adjusted basis, companies added 297,000 jobs in December, according to the latest ADP National Employment Report. That was significantly higher than expectations, with economists forecasting private sector jobs to rise by 100,000, according to Briefing.com. The report revised the November's estimate to 92,000 from 93,000.

Hiring picked up across most industries, with the services sector adding 270,000 in December, the largest monthly increase in the report's history. The goods-producing sector rose 27,000, its second consecutive monthly gain and the most since February 2006. Manufacturing employment also rose by 23,000.
unemployment

Construction employment was unchanged, ending monthly declines that began in June 2007. The financial sector shed 8,000 jobs in December.

The report comes ahead of the crucial December nonfarm payrolls report on Friday. The Labor department is expected to say that the economy added 135,000 jobs in December according to Briefing.com. Economists will likely continue to revise their estimates in the run up to the Labor Department's report on Friday as they take into account the latest numbers from ADP.

Futures were still weak following the report. The SPDR Dow Jones Industrial Average ETF ( DIA) was down 0.2 %. SPDR S&P 500 ETF ( SPY) was sliding 0.4 % while PowerShares QQQQ was dropping 0.3%.

The ADP report has been known to diverge significantly from the nonfarm payrolls report. Last month, the Labor Department said private sector jobs rose only by 50,000 in November, sharply lower than the 93,000 ADP had projected. That cast a shadow of doubt on the recovery story.

Still, with several recent economic reports coming in stronger than expected, investors are hoping that the weak November nonfarm payrolls report was only an aberration.

Earlier on Wednesday, global outplacement consultancy Challenger Gray & Christmas said that companies announced 32,000 jobs in December, down 34% from the previous month and 29% from a year ago, a sign that layoffs were slowing. According to the report, downsizing activity in 2010 reached its lowest level since 1997, as employers announced plans to eliminate 529,973 positions.

Northrop Grumman ( NOC) and Yahoo! ( YHOO) were among companies that recently announced layoffs .

Last week, the Labor Department said the number of Americans filing unemployment claims for the first time dropped to 388,000 in the week ended Dec.25, the lowest number since July 2008. Economists are expecting initial jobless claims for the week ended Dec. 31 to creep up to 405,000, according to consensus estimates from Briefing.com.

Recent reports on manufacturing, personal income and consumer spending have been better than expected. The extension of Bush tax cuts, extended unemployment benefits and cut to payroll tax cuts has also been seen as a stimulus for the economy, with several economists raising their GDP estimates for 2011.

Still, the market needs to see sustained improvements in the employment market to be convinced that the recovery is sustainable. Economists say jobs need to rise by 150,000 jobs every month just to keep unemployment rate steady and need to grow by 250,000 to 300,000 jobs for the economy to make a stronger recovery.

The Federal Reserve, while acknowledging that some areas of the economy are recovering, remains concerned about the high levels of unemployment. Minutes of its December policy meeting released Tuesday showed that the central bank saw no reason to alter its $600 billion quantitative easing program, as the economic recovery was still not significant enough to warrant a change.

-- Written by Shanthi Bharatwaj in New York

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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