Paul Davidson

USA TODAY

Businesses added 246,000 jobs in January, payroll processor ADP said Wednesday, possibly signaling the government this week will report a spike in hiring.

Meanwhile, a flurry of minimum wage increases likely juiced workers’ annual earnings growth last month.

Economists expected ADP to record 168,000 new jobs, according to a Bloomberg survey. They estimate the Labor Department on Friday will announce 175,000 additional jobs in the public and private sectors.

“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.

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ADP tries to project Labor’s private-sector total but often varies from it markedly. For December, ADP came within 9,000.

Other labor market indicators, such as initial jobless claims, which typically reflect layoffs, have indicated steady payroll gains. But overall, many economists expect average monthly job growth to slow to about 160,000 this year from 180,000 last year and 229,000 in 2015 as the low unemployment rate provides employers a smaller pool of available workers.

In January, small businesses added 62,000 jobs, mid-size ones,102,000 and large companies, 83,000.

Professional and business services led the job gains with 71,000. Trade, transportation and utilities added 63,000; education and health care, 47,000; leisure and hospitality, 17,000; and construction, 25,000.

Manufacturers added 15,000 jobs in a sign the sector may finally be turning around as rising oil prices prompt crude producers to resume drilling and ordering materials such as steel pipes.

Jim O’Sullivan, chief economist at High Frequency Economics says the ADP tally is roughly consistent with his forecast for a strong 210,000 new jobs in Friday’s Labor report. He expects some catch-up effects after bad weather restrained Labor’s total job gains to 156,000 in December.

The tight labor market has been putting upward pressure on pay, with average hourly earnings increasing 2.9% from a year ago in December, a seven-year high.

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That trend likely was turbocharged in January, with about 20 states bumping up their minimum wages, including seven implementing automatic cost-of-living adjustments. The moves should push up the monthly average pay increase nationally to about 0.5% from a more typical 0.2%, in Friday's jobs report, says Tom Porcelli, chief economist at RBC Capital Markets.

That’s likely to at least maintain December’s 2.9% annual rise and could well push yearly pay increases to or above 3% in coming months, possibly putting more pressure on the Federal Reserve to raise interest rates again, he says.

The Fed held its key interest rate steady Wednesday, and gave no signal on when it will act again after bumping it up in December for the first time in a year.