AP News

Ahead of the Bell: US Services Index

WASHINGTON (AP) — U.S. service companies likely kept growing at a solid pace in March, reflecting ongoing resilience in consumer spending despite a tax increase at the beginning of the year.

Economists forecast that the Institute for Supply Management's index of service firms stood at 56 in March, according to FactSet, the same as the previous month. February's reading was the highest in a year.

ISM will release the report at 10 a.m. EDT on Wednesday.

Any reading above 50 indicates expansion. The report measures growth at businesses that employ roughly 90 percent of the U.S. workforce, from construction companies to health care and financial services firms.

The index rose to 56 in February from 55.2 the previous month as measures of new orders and sales both rose. February's reading was above the 12-month average of 54.5.

A gauge of hiring slipped from a seven-year high but still pointed to more job gains.

Consumer spending and a steady recovery in housing have lifted the ISM's service index in recent months. The housing rebound has boosted construction activity and hiring and led to more spending at building supply and gardening stores.

The housing recovery has also boosted home prices, which makes homeowners feel wealthier. That can also lead to more spending.

The ISM's service index covers many industries that are closely tied to consumers, such as retail, hotels and restaurants and arts and entertainment. As a result, economists consider the index a rough gauge of consumers' willingness to spend.

Consumer confidence improved in March from the previous month, according to a survey released last week by the University of Michigan. Its index rose to 78.6 from 77.8 the previous month.

In February, consumer spending rose by the most in five months as incomes jumped, the Commerce Department said last week.

That data suggest that consumers have shrugged off the 2 percentage point increase in Social Security taxes that took effect Jan. 1. The higher payroll taxes cost a typical household earning $50,000 about $1,000 a year.

Economists will watch the March survey to see if there has been any impact from the $85 billion in across-the-board federal government spending cuts that took effect March 1. Analysts fear the cuts could shave a half-point off economic growth this year and lead to thousands of job cuts at defense contractors.

But the layoffs and other impacts from the cuts may not be felt until this month or afterwards.

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