The data come ahead of Friday's closely watched July jobs report, which is expected to show 85,000 nonfarm payrolls and a 9.2 percent unemployment rate.

It is further bad news for the U.S., which teetered on the brink of defaulting on its debt repayments before finally rubberstamping a deal to raise the debt ceilingand cut public spending by more than $1 trillion.

The pace of private sector job growth slowed in July with employers adding 114,000 positions, a report by a payrolls processor showed.

Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 100,000 jobs. June's private payrolls were revised down to an increase of 145,000 from the previously reported 157,000.

The report is jointly developed with Macroeconomic Advisers. Economists often refer to the report to fine-tune their expectations for the payrolls numbers, though it is not always accurate in predicting the outcome.

"This only adds fuel to the argument that the slowdown story is here in the U.S. I am fairly confident that people are going to be scaling back their estimates for nonfarm payrolls on Friday,'' said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York. "While it is a good thing that small and medium-sized companies are adding payrolls, there is no doubt that the pace has slowed.''

U.S. stock index futures added to gains immediately following the report, while Treasury prices slipped and the dollar rose against the Swiss franc.

Layoff Wave Lifts Job Cuts to 16-Month High

A separate report showed the number of planned layoffs at U.S. firms rose to a 16-month high in July, as sectors which had been seeing fairly few layoffs unexpectedly bled jobs.

Employers announced 66,414 planned job cuts last month, up 60.3 percent from 41,432 in June, according to a report from consultants Challenger, Gray & Christmas.

The job cuts were up 60 percent from June, and 59 percent higher than the 41,676 layoffs recorded in July 2010. Its was the largest monthly total since March 2010, and the first month this year that the government was not the biggest job cutter.

"What may be most worrisome about the July surge is that the heaviest layoffs occurred in industries that, until now, have enjoyed relatively low job-cut levels," John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement.

Layoffs in the pharmaceutical and retail sectors overtook nonprofit and government job cuts last month, accounting for 20.32 percent and 16.93 percent of announcements, respectively.

The cuts were the result of large layoffs by a handful of private-sector employers, including Merck, Borders, Cisco Systems , Lockheed Martin and Boston Scientific .