By Richard Leong
(Reuters) - U.S. companies hired workers at a slower but still-solid pace in April, while the domestic services sector grew more than expected, supporting the notion the economic expansion remains on track despite a weak first quarter, private data released on Wednesday showed.
An improving labor market and faster activity in services industries last month also buttressed traders' expectations the Federal Reserve would raise interest rates further in the coming months.
"In short, more evidence that the underlying trend in growth is not suddenly slowing, as suggested by the GDP data. If anything, the trend appears to be up, not down," High Frequency Economics Chief U.S. Economist Jim O'Sullivan wrote in a research note.
Last week, the government said gross domestic product increased 0.7 percent in the first quarter, the weakest pace in three years.
Payrolls processor ADP said on Wednesday private employers added 177,000 jobs last month. It was the smallest gain since the 62,000 increase last October but slightly above the 175,000 median forecast among economists polled by Reuters.
Private payroll gains for March were revised down to 255,000 from an originally reported 263,000 increase.
ADP, which jointly developed its employment report with Moody's Analytics, said private employers face increasing difficulty finding qualified workers in a tightening labor market.
The Federal Open Market Committee is widely expected to leave interest rates unchanged at the current range of 0.75-1.00 percent at its policy meeting that will conclude later Wednesday.
Traders expect the Fed's policy-setting group will hike rates by a quarter point at its next meeting on June 13-14.
U.S. financial markets brushed off the latest data as investors await the Fed's upcoming rate decision. Major stock indexes and U.S. bond yields were lower, while the dollar strengthened slightly.
The ADP figures come ahead of the U.S. Labor Department's more comprehensive non-farm payrolls report at 8:30 a.m. (1230 GMT) on Friday.
Economists polled by Reuters expect U.S. private payroll employment likely grew by 185,000 jobs in April, up from 89,000 in March, while the jobless rate likely ticked up to 4.6 percent from the 4.5 percent in March.
DEMAND PICK-UP LIFTS SERVICES SECTOR
The Institute for Supply Management (ISM) said on Wednesday its index of non-manufacturing activity rose to 57.5 in April from March's 55.2, which was above analysts' expectations of 55.8.
A reading above 50 indicates expansion in the services sector, which accounts for nearly 80 percent of the U.S. economy.
The business activity index rose to 62.4 from 58.9 the month before. That was above a median forecast of 58.4.
"Following a run with some softer indicators lately, the firming in the survey data is an encouraging sign for the economy," J.P. Morgan Economist Daniel Silver said.
The survey's new orders index climbed to 63.2, the strongest since August 2005, from 58.9 in March.
However, the employment index fell to 51.4, its lowest since August, from March's 51.6.