WASHINGTON (MarketWatch) — Private-sector job growth picked up in August, recording the largest employment gain in five months, according to data released Thursday by payrolls processor Automatic Data Processing Inc.

Private-sector payrolls rose by 201,000 in August, led by small businesses and the service-providing sector, beating Wall Street’s expectations.

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ADP revised July’s level to an increase of 173,000 from a prior estimate of 163,000.

“The gain in private employment in August is strong enough to suggest that the national unemployment rate may have declined,” said Joel Prakken, chairman of Macroeconomic Advisers, which produces the report for ADP.

Markets look to ADP’s report on private-sector payrolls to provide some guidance on the U.S. Labor Department’s jobs estimate, which will be released Friday and includes information on both private and public-sector payrolls.

Stock futures extended gains Thursday after the ADP report’s release. Read more about the reaction in the stock market.

Economists polled by MarketWatch expect the U.S. Labor Department to report Friday that the unemployment rate remained at 8.3% in August. Also, they forecast that nonfarm-payroll employment rose by 120,000 in August, compared with 163,000 in July. However, following ADP’s release, economists said there could be an upside surprise for payrolls on Friday, though there are often substantial differences between the ADP and government reports. See economic calendar.

By establishment size, ADP reported that employment rose 99,000 at small businesses, 86,000 at medium businesses and 16,000 at large businesses. Employment increased 185,000 in the service-providing sector and 16,000 in the goods-producing sector.

The Fed is watching

Friday’s jobs report is an important factor for Federal Reserve officials, who have been considering whether to provide additional quantitative easing. The central bank’s next meeting is later this month, and a disappointing jobs report on Friday could increase the likelihood for QE3.

“Although the ADP survey is rarely a perfect predictor of nonfarm payrolls which follow, today’s strong number may raise expectations for tomorrow’s figure,” said Andrew Grantham at CIBC World Markets.

“And if this strength is repeated tomorrow, expectations for an early move to QE3 next week will be dampened,” Grantham noted.

However, despite positive jobs news, the Fed may still want to act, said Paul Ashworth, chief U.S. economist at Capital Economics.

“We wouldn’t expect this improvement to persuade the Fed to hold fire next week. Employment would need to grow by a lot more than 200,000 per month to bring the unemployment rate down at a pace more agreeable to the Fed,” Ashworth said.

Jobs data details

In addition to ADP, there were two other positive jobs reports Thursday morning. Outplacement consultancy Challenger, Gray & Christmas reported that the number of announced layoffs fell to 32,000 in August — the lowest level since December 2010 — from 37,000 in July. Cuts announced in August were 37% lower than last year.

“Job cuts slowed significantly over the summer, but it is too early to determine whether this is a trend,” said John Challenger, chief executive. “There is a chance workers might be spared from a renewal of large-scale job cuts, but the situation beyond our borders certainly will not inspire companies to start adding workers en masse.”

Also Thursday, the U.S. Department of Labor reported that first-time claims for regular state unemployment-insurance benefits fell in the most recent weekly data. Read more about jobless claims.