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Service firms grow at fastest pace since August

Published: Monday, May 5, 2014 5:28 p.m. CDT
(Alan Diaz)
In this April 16, 2014 photo, a worker prepares to align blocks during the construction of a new building in the South Pointe area of Miami Beach, Fla. The Institute for Supply Management, a group of purchasing managers, issues its index of non-manufacturing (service-sector) activity for April on Monday, May 5, 2014. (AP Photo/Alan Diaz)
(Ted S. Warren)
FILE - In this April 17, 2014 photo, Ryan Peterson prepares french fries at a Dick's Drive-In restaurant in Seattle. The Institute for Supply Management, a group of purchasing managers, issues its index of non-manufacturing activity for April on Monday, May 5, 2014. (AP Photo/Ted S. Warren, File)

WASHINGTON – U.S. service firms grew last month at the fastest pace since August as new orders and sales grew, adding to evidence the economy is picking up after a slow start to the year.

The Institute for Supply Management said Monday its service-sector index rose to 55.2 from 53.1 in March. Any reading above 50 indicates expansion. The ISM is a trade group of purchasing executives.

The figures come after a healthy jobs report on Friday also fueled hopes for an improving economy. The government said employers added 288,000 jobs in April, the most in 2½ years, and the unemployment rate fell to 6.3 percent.

The jobs report wasn’t all positive, however. The rate fell mostly because fewer people began looking for work. The government doesn’t count people as unemployed unless they are actively searching for a job. And the jobs figures showed that wages were flat last month.

Still, the better services and hiring data represent a turnaround after the government said last week that the economy barely expanded in the first three months of the year. Harsh winter weather kept shoppers away from the malls and dragged down home and auto sales. But spending and hiring has rebounded as the weather has improved.

A measure of sales and production in the ISM report surged 7.5 points to 60.9 and a gauge of new orders jumped 4.8 points to 58.2. Both are the highest since August. The increase in new orders suggests business will continue growing in the coming months.

The report is “more evidence of growth reaccelerating after exaggerated weakness a couple of months ago,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.

The survey covers businesses that employ 90 percent of the workforce, including retail, construction, health care and financial services firms.

A gauge of employment declined, though remained above 50. That indicates that services firms are adding jobs, but more slowly.

The ISM report contributed to a turnaround on Wall Street. The Dow Jones industrial average had fallen about 80 points before the data was released, but was up by a point around noon.

Anthony Nieves, chairman of the ISM’s services survey committee, said the healthier picture mostly reflects solid increases in consumer demand. But the better spring weather also helped. One survey respondent in the hotel and restaurant industry said that business picked up because of a “break in the weather.”

Solid job creation has made Americans a bit more confident and more willing to spend. Consumer spending jumped in March by the most in 4 ½ years, as Americans bought more cars, clothes and furniture.

More spending contributed to widespread growth among the service industries tracked by the survey.

Fourteen of the eighteen industries expanded last month, including arts, entertainment and recreation; retail; construction; hotels and restaurants; shipping and warehousing; finance; and real estate. The industries that contracted were mining; health care; profession, scientific and technical services; and other services.

A separate report by the ISM last week showed that manufacturing also grew at a faster pace in April. And a measure of hiring jumped to its highest level since December.

The economy expanded at a paltry 0.1 percent annual rate in the first three months of the year. But analysts are much more optimistic about the April-June quarter. Economists at Bank of America Merrill Lynch on Friday boosted their forecast for second-quarter growth to 3.6 percent from 3.2 percent.

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