Bloomberg News

Service Industries in U.S. Expanded More Than Forecast

February 03, 2012

(Updates with economist’s comment in fourth paragraph.)

Feb. 3 (Bloomberg) -- Service industries in the U.S. expanded in January at the fastest pace in almost a year, pointing to strength in the biggest part of the economy.

The Institute for Supply Management’s non-manufacturing index rose more than forecast, to 56.8 from 53 in December, the Tempe, Arizona-based group’s data showed today. Readings above 50 signal expansion and the median forecast of 77 economists surveyed by Bloomberg News was 53.2.

A 243,000 increase in January payrolls reported earlier today signals an improving labor market that will help sustain household demand, which accounts for about 70 percent of the economy. Together with gains in manufacturing, the strength in service industries will help the U.S. mitigate the risks from Europe’s debt crisis.

“Growth continues to accelerate,” Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, said before the report. “The economy is moving forward” as “economic conditions are slowly on the rise.”

Economists’ estimates in the Bloomberg survey ranged from 52 to 54.

Employment climbed more than forecast in January and the jobless rate unexpectedly fell to the lowest in three years, another report today showed.

The increase in payrolls was the most since April and exceeded all forecasts in the Bloomberg survey, Labor Department figures showed in Washington. The unemployment rate dropped to 8.3 percent, the lowest since February 2009.

Employment, Orders Jump

The ISM non-manufacturing survey’s employment gauge jumped to 57.4, the highest since February 2006, from 49.8 in the prior month. The measure of new orders increased to 59.4, the highest since March. A gauge of business activity climbed to 59.5, the strongest in almost a year. The index of prices paid also increased.

The ISM services survey covers industries ranging from utilities and retailing to health care and finance. A Feb. 1 report by the group showed manufacturing grew in January at the fastest pace in seven months, propelled by new orders.

Service providers seeing an improvement include United Parcel Service Inc. The world’s largest package-delivery company forecast a 2012 profit that exceeded analysts’ estimates as shipping demand increases.

“We certainly are seeing a better U.S. economy than we would have thought back in probably August, September,” Chief Executive Officer Scott Davis said in a Jan. 31 call with investors.

Federal Reserve

Even so, Federal Reserve policy makers last month announced they will maintain near-zero interest rates through at least late 2014. Chairman Ben S. Bernanke said yesterday that the economy has shown signs of improvement while remaining vulnerable to shocks.

“Fortunately, over the past few months, indicators of spending, production, and job-market activity have shown some signs of improvement,” Bernanke said in prepared testimony to the House Budget Committee in Washington. “The outlook remains uncertain, however, and close monitoring of economic developments will remain necessary.”

The economy grew at a 2.8 percent annual pace in the fourth quarter after a 1.8 percent gain in the prior three months, the Commerce Department reported on Jan. 27. The growth rate excluding a jump in inventories was 0.8 percent. Consumer spending rose at a 2 percent pace last quarter, it showed.

--With assistance from Kris Scheuble in Washington. Editor: Vince Golle

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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