U.S. private sector jobs tepid, mortgage applications near flat

Reuters

* Private employers add 166,000 jobs in Sept-ADP

* Home loan applications dip in latest week

* Data suggest Fed economic support still needed

By Luciana Lopez

NEW YORK, Oct 2 (Reuters) - U.S. private employers addedfewer jobs than expected in September and mortgage applicationsremained near flat in the latest week, underscoring expectationsthat growth in the world's biggest economy will stay steady butsluggish.

U.S. private employers added 166,000 jobs last month,according to payroll processor ADP's National Employment Report.Economists in a Reuters poll had expected a gain of 180,000jobs. August's private payrolls gains were revised to 159,000from the previously reported 176,000.

But while the current numbers don't yet include any effectsfrom the federal government shutdown that began this week,economists fretted upcoming figures could take a hit from theimpasse in Congress.

With House Republicans standing firm on their demand todelay President Barack Obama's signature healthcare law inexchange for agreeing to keep the government running, estimatesfor the shutdown length run the gamut from a few days to weeks.

One result of the shutdown is added weight for the ADPreport, as some other economic data for August and September hasbeen or may be delayed. For example, it now seems unlikelyFriday's key non-farm payrolls report from the Labor Departmentwill be released according to schedule.

The weak ADP report suggests the U.S. Federal Reserve willneed to keep its support for the world's biggest economy inplace to bolster growth which the International Monetary Fundforecasts this year at a lackluster 1.7 percent.

The ADP report "basically says that the stimulus willcontinue," said Chris Gaffney, senior market strategist atEverBank Wealth Management in St. Louis, Missouri.

"The government shutdown will be a negative impact on theU.S. economy, extending the need for additional stimulus."

In a further sign of weakness, industry data showedapplications for U.S. home loans dipped slightly in the latestweek, as a drop in demand for purchase loans outweighed anincrease in refinancing demand.

The Mortgage Bankers Association said its seasonallyadjusted index of mortgage application activity, which includesboth refinancing and home purchase demand, fell 0.4 percent inthe week ended Sept. 27.

The Fed has been weighing pulling back on its$85-billion-per-month bond buying program but has so far kept upthe purchase pace on worries that the economy, including thelabor and housing markets, has not yet gathered enough momentumto stand on its own.

Nevertheless, the government shutdown will not show up inADP data "to any significant degree" unless the shutdown laststhrough the middle of October, Mark Zandi, chief economist ofMoody's Analytics, said in a conference call with reporters. TheADP report is jointly developed with Moody's Analytics.

But Zandi noted that political uncertainty, including thekind of brinkmanship involved in the federal governmentshutdown, has had a "significant effect" on the U.S. economy inrecent years, raising the unemployment rate by perhaps as muchas 0.7 percentage point.

And he emphasized the potential for far worse effects shouldthe impasse in Congress extend to the need to raise thegovernment borrowing limit. That, he said, would open aPandora's box of problems for the economy.

Notable in Wednesday's report were small employers, whoadded 74,000 jobs, more than either medium or large businesses.

Zandi also said he was not seeing evidence that smallemployers are shying away from hiring because of the health careprovisions of the Affordable Care Act.

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