WASHINGTON (Reuters) - U.S. private sector payrolls increased by the most in eight months in October, suggesting overall job growth accelerated this month after Hurricane Florence weighed on restaurant and retail employment in September.

FILE PHOTO: A sign advertises open jobs at an Embassy Suites hotel in Waltham, Massachusetts, U.S., December 13, 2017. REUTERS/Brian Snyder

The strong jobs market is gradually putting upward pressure on compensation, with other data on Wednesday showing a solid increase in labor costs in the third quarter. Labor market strength is expected to underpin economic growth despite weak housing, slowing business investment and stock market turmoil.

“The economy is in great shape with lots of jobs and more money in workers’ paychecks and this should help bolster the outlook as the financial markets stumble,” said Chris Rupkey, chief economist at MUFG in New York.

The ADP national employment report showed private sector employment rose by 227,000 jobs last month, the biggest gain since February and beating economists’ expectations for an increase of 189,000. September’s payrolls count was revised down to 218,000 from 230,000.

The ADP report is jointly produced with Moody’s Analytics. It was published ahead of the release of the government’s more comprehensive October employment report on Friday.

According to a Reuters survey of economists, nonfarm payrolls probably rebounded by 190,000 jobs in October after Florence depressed restaurant and retail payrolls in September.

But acceleration in employment growth likely was tempered by Hurricane Michael, which struck Florida in mid-October. Payrolls increased by 134,000 in September, the fewest in a year.

“The strength in the ADP report supports our view that the underlying trend in the labor market remains upbeat,” said Daniel Silver, an economist at JPMorgan in New York.

The unemployment rate is forecast unchanged at a near 49-year low of 3.7 percent in October. The ADP report showed manufacturing payrolls increased by 17,000 positions last month while construction also gained 17,000 more jobs.

There were also strong increases in professional and business, education and health, and leisure and hospitality payrolls, as well as trade, transportation and utilities.

The dollar rose to a 16-month high against a basket of currencies, while U.S. Treasury prices fell. Stocks on Wall Street rallied, with the S&P 500 and the Nasdaq on track to post their first two-day gain this month.

BROAD WAGE GAINS

Separately on Wednesday, the Labor Department’s Employment Cost Index report showed wages and salaries, which account for 70 percent of employment costs, jumped 0.9 percent in the third quarter after climbing 0.5 percent in the prior period.

That pushed the annual increase in wages and salaries to 2.9 percent, the biggest gain since September 2008, from 2.8 percent in the year to June. Wage growth was boosted by a surge in transportation and warehousing, likely reflecting a shortage of truck drivers. There were also gains in other industries, including information, healthcare and leisure and hospitality.

“Broadening wage pressures across industry groups and across the pay scale are helping to drive sustained gains in wages for workers,” said Ellen Zentner, chief economist at Morgan Stanley in New York.

The jobs market is viewed as being close to or at full employment. There are a record 7.1 million job openings in the economy. Rising wages should help support consumer spending and soften the hit to the economy from a softening housing market and stalling business investment.

The surge in wages lifted the Employment Cost Index, the broadest measure of labor costs, which increased 0.8 percent in the third quarter after rising 0.6 percent in the second quarter. The ECI is widely viewed by policymakers and economists as one of the better measures of labor market slack. It is also considered a better predictor of core inflation.

The Federal Reserve increased interest rates in September for the third time this year and removed a reference to monetary policy remaining “accommodative” from its policy statement. The U.S. central bank is expected to raise rates again in December.

Private sector wages and salaries rose 0.8 percent in the third quarter after increasing 0.6 percent in the prior period. They were up 3.1 percent in the 12 months through September, the biggest increase since the second quarter of 2008. That followed a 2.9 percent gain in the year to June.

State and local government wages increased 0.9 percent after advancing 0.5 percent in the second quarter.

But benefits for all workers increased only 0.4 percent in the July-September quarter after rising 0.9 percent in the second quarter. They were up 2.6 percent in the 12 months through September after rising 2.9 percent in the year to June.