NEW YORK (CNNMoney.com) -- The pace of U.S. job cuts continued to slow last month, according to two reports released Wednesday.
Automatic Data Processing (ADP, Fortune 500), a payroll-processing firm, said private-sector employers cut 20,000 jobs in February, the fewest since February 2008 when employment first began to decline.
Economists surveyed by Briefing.com had forecast a loss of 20,000 jobs in February.
It was the 11th straight month that job losses narrowed from the previous month. The number of cuts in January was revised up to 60,000 from the previously reported 22,000.
The service sector reported job growth for a third consecutive month after a 21-month decline, with an increase of 17,000 jobs in February, and the manufacturing sector moved into positive territory for the first time since January 2008 by adding a modest 3,000 jobs.
But employment still lags in the goods-producing sector, which reported a loss of 37,000 jobs during the month.
"The report is pretty encouraging since there was an increase in employment in the service-providing sector and the manufacturing sector," said Joel Prakken, chairman of Macroeconomic Advisers, during a conference call. "But the total is down because of a fairly sizable cut in employment on the payrolls of construction companies."
The report said employers in construction shed 41,000 jobs in February, which is the smallest decline since July 2008 but only a slight improvement from the 48,000 job decline in January.
Prakken expects overall job growth during the current month.
He also added that the highly anticipated February jobs report from the Labor Department due Friday might show more severe job reductions because of adverse weather around the country and two major blizzards on the East Coast.
Prakken explained that if the weather hindered employees from working and earning pay during the week the government collects data, the Labor Departments treats that situation as a job loss. But the losses are restored in the following month's report.
For example, when blizzards pounded the East Coast in January 1996, the Labor Department reported a loss of 19,000 jobs. But the following month, the report showed employers added 434,000 positions.
Even if the government's February jobs report shows weather-related weakness, Prakken expects a significant boost in jobs for March.
In a separate report released Wednesday, outplacement firm Challenger, Gray & Christmas Inc. said that 42,090 job cuts were announced in February, 41% less than January's 71,482 cuts. It was the lowest total since July 2006, when 37,178 cuts were announced.
Since peaking in January of last year, monthly job cuts have steadily declined, with only a couple of exceptions, Challenger said. February's total is 77% lower than the year-ago period.
"Most economists agree that a recovery is well underway; a position that appears to be supported by declining job-cut activity," John Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement. "It may be a couple of more months before hiring begins to surge, but it is clear that employers have shifted away from downsizing and are poised to start adding workers."
So far this year, the biggest comebacks have been in the automotive and industrial goods sectors, which have both seen a 90% drop in cuts from a year ago. Year-to-date cuts in the retail sector are down 75% from this time last year.
The pharmaceutical sector has been hit the hardest in 2010 with 25,857 job cuts year to date, thanks in part to further cuts announced at drugmaker Merck, following its merger with Schering-Plough.
Mergers and acquisition were the main reason for job cuts in February, accounting for 20,068 cuts in the month. But these types of job losses could pave the way for hiring, according to Challenger.
"What is most promising about these recent cuts is that they are being made to put the company in the best position to take advantage of future growth opportunities," Challenger said. "Twelve months ago, cuts were being made simply to keep the company afloat."
The report sets the stage for the highly anticipated monthly jobs report from the government due Friday. The Labor Department report is expected to show that 20,000 jobs were lost in February, on par with the 20,000-loss reported for January, according to a consensus estimate of economists compiled by Briefing.com. The unemployment rate is predicted to edge up to 9.8%.
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