Private sector employment increased sharply in January, as employers added 246,000 jobs in a positive sign for the start of the year, according to payroll giant ADP.

Small businesses added 62,000 jobs, including 30,000 at businesses with between one and 19 employees, and 31,000 at businesses with between 20 and 49 employees.

Medium businesses with between 50 and 499 employees added 102,000 jobs.

Large businesses gained 83,000 jobs, including 20,000 at companies with between 500 and 999 employees, and 63,000 at companies with 1,000 employees or more.

ADP January 2017 National Employment Report

The service sector led the way, adding 201,000 jobs in January. Those included 71,000 in professional and business services, which include accounting and tax along with other types of services. The goods-producing sector added 46,000 jobs in January, including 25,000 in construction, 15,000 in manufacturing and 25,000 in construction. Franchise businesses added 15,500 jobs last month.

“The U.S. labor market is hitting on all cylinders and we saw small and midsized businesses perform exceptionally well,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, in a statement. “Further analysis shows that services gains have rebounded from their tepid December pace, adding 201,000 jobs. The goods producers added 46,000 jobs, which is the strongest job growth that sector has seen in the last two years.”

Mark Zandi, chief economist of Moody’s Analytics, which compiles the monthly national employment report with ADP, pointed to the strong start for the year. He told reporters on a conference call Wednesday that the results might have been “juiced” a bit by the unseasonably mild weather in January in some parts of the country, and that might have created some seasonal adjustment issues. He believes the underlying job growth is still roughly 175,000 per month, as it was through much of last year, which is well above the number needed to absorb the growth in the working age population. He expects to see further declines in unemployment and underemployment and for wage growth to pick up more, as it goes from 2 percent to 3 percent per year.

“It feels like everything is on track,” said Zandi. “The labor market is strong.”

He cautioned that the number of open jobs is elevated, except in the energy industry. But otherwise the labor market is tight and it has become increasingly difficult for many employers to fill open jobs. That could put a damper on job growth and bring it closer to 100,000 per month, which is more in line with the growth in the working age population.

“The job market feels good,” said Zandi. “The economy has a lot of momentum coming into 2017. It will take an awful lot to derail it. The year should be pretty good.”

However, there might be some headwinds with the store closures and layoffs announced last month by retailers such as Macy’s, Kmart, Sears and the Limited.

“Retail employment is on the soft side,” said Zandi. “There are ups and downs monthly, but it probably will remain soft for the foreseeable future, not because consumer spending hasn’t been strong. It’s actually quite strong, but the way people are shopping is changing. Online is taking retail sales share from brick and mortar and that’s putting a lot of pressure on the brick and mortar retailers. They’re also under pressure because their margins are very thin, so that and the value of the dollar overseas have made life difficult for them. I expect a lot of continued weakness there and not a lot of job growth.”

The hiring freeze in the federal government is likely to have a slight impact on job growth, at least in the public sector.

“With regard to the federal government, the freeze is actually on the executive branch, nonmilitary and non-necessary jobs,” said Zandi. “I did a calculation there. That could result in 5,000 to 10,000 fewer jobs being created on a monthly basis going forward as long as the freeze is in place. That’s measurable, but in the grand scheme of things, it’s not large.”

The other policies announced by the Trump administration in terms of trade, taxes, immigration and regulatory reform are also likely to have an impact in different ways.

“In terms of other policy, it depends on what policies we get,” said Zandi. “If we’re focused on tax reform, corporate tax reform in particular with lower marginal rates for businesses, that’s roughly paid for through scaling back preferences in the code. If you’re focused on infrastructure spending, that would be positive for jobs. If we’re focused on less important targeted changes to regulation to fix some of the things that I don’t think anyone’s particularly happy with, in terms of the different types of financial and health care regulation, that could be pretty positive for the economy and jobs. These policy changes don’t affect the economy big time in any given month or quarter, but over periods of time I think it would be positive. If we’re focused on restricting immigration or trade, I think that would most ultimately be negative for growth in jobs and the economy, again probably not something that matters in any given month or quarter, but over a period of time. With regard to policy, it really does matter what kinds of policies the policy makers focus on and implement, but we’ll have to see how this goes. There’s obviously a lot of uncertainty around that.”

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Michael Cohn

Michael Cohn

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.