US service sector expands on gain in new orders

11:19 AM, Feb 5, 2014   |    comments
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WASHINGTON (AP) - U.S. service companies expanded at a slightly faster pace in January. New orders, sales and hiring showed strength in a sign that financial firms, retailers and information technology companies foresee stronger growth.

The Institute for Supply Management, a trade group of purchasing managers, said Wednesday that its service-sector index rose to 54 from 53 in December. Any reading above 50 indicates expansion.

The improvement points to continued economic gains for the service industry, despite some challenges posed by freezing temperatures and winter storms last month.

The survey covers businesses that employ 90 percent of the U.S. workforce, including retail, construction, health care and financial services firms. Because these companies are less sensitive to nasty weather than manufacturers are, the January figure suggests that a reported slowdown at factories last month was due in part to the winter chill rather than to broader weakness in the economy.

The services sector has experienced "slow, incremental growth" for the past four years and is on a sustainable path, said Anthony Nieves, chairman of ISM's services survey.

"It's been chugging along very steady," said Nieves, adding that the 4 1/2-year-old recovery from the Great Recession has been "very resilient even with the ups and downs."

A measure of new orders rose 0.5 points to 50.9. The measure for hiring rose 0.8 points to 56.4, the highest reading since November 2010.

The improved employment measure could point to solid jobs gains in the January employment report being released Friday by the Labor Department, said Maninder Sibia, an economist for Contingent Macro Advisors.

Earlier this week, the ISM said its survey on manufacturing plunged to 51.3 in January from 56.5 in December, partly because cold weather delayed shipments of raw materials and caused some factories to shut down. The drop rattled the stock market as evidence that the economic strength coming out of last year might be starting to fade.

The economy has lost some momentum after expanding at an annualized 3.2 percent annual rate in the final quarter of 2013.

Orders to U.S. factories fell 1.5 percent in December. Incomes were practically flat that month as well. Auto sales slipped 3 percent in January. And the U.S. stock market plunged in recent weeks on turmoil coming out of emerging market economies such as China and Turkey.

But the modest increase in the ISM's services index raises the possibility that the economy will soon emerge from any cold spell. Many economists project overall economic growth this year of 3 percent or more, the strongest improvement since 2005.

(Copyright 2014 by The Associated Press. All Rights Reserved.)

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