U.S. Hiring Drops Off in August

Hiring by U.S. companies slowed sharply in August dropping far more than economists expected, with moderation in manufacturing and services, payrolls firm ADP said Wednesday.

However, the closely-watched data are about in line with the expected slowdown in the official employment report due out Friday.

ADP said the private sector added 163,000 jobs last month, after an increase of 217,000 in July, as goods producing firms hired 24,000 -- about half the pace of the prior month.

The massive services sector hired 139,000 new workers, 38,000 fewer than in July.

The report showed slowing across many industries, with notable drop in hiring in construction, business services and healthcare. 

And the mining sector actually shed 1,000 jobs.

"Although we saw a small slowdown in job growth the market remains incredibly dynamic," Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, said in a statement.

Employers have been expressing concerns for months that they are struggling to fill open positions and find qualified workers. That has led to reports of rising wages, and poaching of workers from the competition.

Mark Zandi, chief economist of Moody’s Analytics, said, "Employers are aggressively competing to hold onto their existing workers and to find new ones. Small businesses are struggling the most in this competition."

That could become a concern for the Federal Reserve if wage increases become more widespread and start to pressure inflation, which so far has remained about in line with the two percent target.

The Fed has raised the benchmark interest rate twice this year and is expected to hike again later this month and again in December as it works to head off rising prices.

The ADP report is closely scrutinized as it comes ahead of Friday's all-important government jobs report, although the two reports are not always in line.

Economists are expected the government report to show an increase of 175,000 private jobs.