U.S. companies in May hired more workers than anticipated by a wide margin to rebound from a six-month low in the prior month, while a tightening labor market should point to increasing wage growth.
U.S. private employers added 253,000 jobs in May, above economists' expectations, a report by a payrolls processor showed on Thursday.
Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 185,000 jobs, with estimates ranging from 155,000 to 240,000.
Private payroll gains in the month earlier were revised down to 174,000 from an originally reported 177,000 increase, which was the lowest since October.
The report is jointly developed with Moody's Analytics.
"Given the strong argument that this labor market is going to get really tight, wage growth should pick up much more meaningfully as we make our way through the year into 2018," Moody's Analytics' chief economist Mark Zandi said on a conference call with reporters.
Zandi said with the U.S. economy growing at about a 2 percent rate, job creation of about 200,000 per month is much greater than labor force growth, which will make the labor market even tighter.
"Labor shortages are quickly becoming businesses' number one problem and that problem is only going to get worse going forward."
An improving labor market will likely support traders' expectations that the Federal Reserve will raise interest rates further in the coming months.
Traders currently anticipate a 94.7 percent chance the Fed will raise rates by a quarter point at its June 13-14 meeting, according to Thomson Reuters data.
The ADP figures come ahead of the U.S. Labor Department's more comprehensive non-farm payrolls report on Friday, which includes both public and private-sector employment.
Economists polled by Reuters are looking for U.S. private payroll employment to have grown by 173,000 jobs in May, down from 194,000 the month before. Total non-farm employment is expected to have changed by 185,000.
The unemployment rate is forecast to stay steady at the 4.4 percent recorded a month earlier.
(Reporting by Chuck Mikolajczak; Editing by Chizu Nomiyama)