WASHINGTON: US private employers hired far fewer workers than expected in July as companies exhausted loans to help with wages and new Covid-19 infections flared up across the country, supporting the view that the nascent economic recovery was faltering.

While other data on Wednesday showed activity in the vast services sector gained momentum in July as new orders raced to a record high, hiring declined. The reports, together with a recent rise in applications for unemployment benefits, suggest job growth pulled back sharply in July. The Labour Department will publish July's employment report on Friday.

The ADP National Employment Report showed private payrolls increased by 167,000 jobs last month after jumping by 4.314 million in June. Economists polled by Reuters had forecast private payrolls would increase by 1.5 million in July.

Hiring weakened across the board last month. Payrolls for medium-sized businesses with 50 to 499 employees fell 25,000. The sharp step-down in hiring was attributed to the expiration of the US government's Paycheck Protection Program (PPP) and the resurgence in coronavirus cases.

The PPP was part of a historic fiscal package worth nearly $3 trillion that gave businesses loans that can be partially forgiven if used for employee pay. New cases of the respiratory illness have exploded, especially in the densely-populated South and West regions where authorities in hard-hit areas are closing businesses again and pausing reopenings.

California, Texas and Florida account for a third of the nation's employment. Labor markets in the Midwest have been strong, but that could change as the region battles a surge in new Covid-19 cases.

The economy suffered its biggest blow since the Great Depression in the second quarter, with gross domestic product shrinking at its steepest pace in at least 73 years.

In a separate report on Wednesday, the Institute for Supply Management (ISM) said its services index increased to a reading of 58.1 last month, the highest since March 2019, from 57.1 in June. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of US economic activity.

The ISM survey's measure of new orders for the services industry soared to a record 67.7 in July from a reading of 61.6 in June. Its index of services industry employment, however, fell to a reading of 42.1 last month from 43.1 in June, contracting for a fifth straight month. Companies reported either freezing hiring or limiting recruitment.

According to a Reuters survey of economists, nonfarm payrolls likely increased by 1.6 million in July, down sharply from the record 4.8 million jobs created in June. That would leave employment about 13.1 million jobs below the pre-pandemic level.

But there are some glimmers of hope for the economy, which slipped into recession in February. In a separate report on Wednesday, the Commerce Department said the trade deficit narrowed 7.5% to $50.7 billion in June.

Exports rebounded by a record 9.4% to $158.3 billion. Goods exported surged by a historic 14.5% to $102.9, boosted by shipments of motor vehicles and parts, capital goods and industrial supplies, including crude oil.

That offset a 4.7% increase in imports to $208.9 billion. The rise in exports was the largest since March 2015. Goods imports rose 5.4% to $175.0 billion, lifted by imports of motor vehicles and parts, consumer and capital goods.