Service industries expanded in February at the fastest pace since 2005 and fewer Americans unexpectedly filed claims for jobless benefits, adding to evidence the U.S. recovery is gaining strength.
The Institute for Supply Management’s index of non-manufacturing businesses increased to 59.7 last month from 59.4 in January. A reading above 50 signals growth. The number of initial applications for unemployment insurance payments fell by 20,000 to 368,000 last week, the lowest since May 2008 and fewer than the most optimistic forecast in a Bloomberg News survey, figures from the Labor Department showed.
Stocks rose as the figures supported the Federal Reserve’s assessment that the labor market is on the mend following the loss of 8.75 million positions during the recession. Brighter prospects about personal finances are bolstering consumer confidence, another report showed, increasing the odds that Americans will keep spending at stores like J.C. Penney Co. and Macy’s Inc.
“You’re getting a picture of an economy that is quite strong already and perhaps gathering momentum,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “Sentiment has been picking up over the last two or three months and that stands to reason -- the stock market has done better, the economy has certainly done better, and, most importantly, the labor market is improving.”
The Standard & Poor’s 500 Index rose 1.7 percent to 1,330.97 at the 4 p.m. close in New York for its biggest gain in three months. The index is up 21 percent in the past six months.
The Bloomberg Consumer Comfort Index, formerly the ABC News U.S. Weekly Consumer Comfort Index, was minus 39.3 in the period to Feb. 27, little changed from the minus 39.2 reading the prior week that was the highest in almost three years.
The comfort index of personal finances rose to 2.4 last week, the highest since May 2009, from minus 2.3. Fifty-one percent of those polled held positive views on their financial situation, up from 49 percent the previous week and the first time since January 2010 that the reading topped 50 percent.
J.C. Penney, Macy’s and Ross Stores Inc. were among retailers today reporting February same-store sales that topped analysts’ estimates. Purchases at stores open at least a year climbed 6.4 percent at J.C. Penney, 5.8 percent at Macy’s and 3 percent at Ross, company data showed.
“We are encouraged by our solid start to the year,” Michael Balmuth, chief executive officer of Pleasanton, California-based discounter Ross Stores, said in a statement. Even so, “the much more important March/April holiday selling period is still ahead.”
Americans have more money to spend following President Barack Obama’s agreement with Congress in December to extend Bush-era tax cuts. A Commerce Department report this week showed incomes climbed 1 percent in January, the most since May 2009, after the president’s compromise reduced the social security payroll tax by 2 percentage points this year.
A Labor Department report tomorrow may show that payrolls rose by almost 200,000 workers in February, the biggest advance since May, after a 36,000 gain the previous month, according to the median forecast of economists surveyed by Bloomberg.
“We do see some grounds for optimism about the job market over the next few quarters, including notable declines in the unemployment rate in December and January, a drop in new claims for unemployment insurance, and an improvement in firms’ hiring plans,” Bernanke told Congress this week.
So far, the labor market “has improved only slowly” and it may take “several years” for the unemployment rate to reach a “more normal level, Bernanke said.
Initial jobless claims have declined in four of the last five weeks. Economists surveyed by Bloomberg News projected an increase in claims last week to 395,000. Projections in the survey ranged from 375,000 to 405,000.
“Labor market conditions continued to strengthen modestly” early this year, the Fed said yesterday in its Beige Book report, an anecdotal account of the economy released two weeks before meetings of the Federal Open Market Committee. Its last survey, released Jan. 12, said the job market was “firming somewhat.”
At the same time, rising food and fuel costs may strain household budgets. The cost of gasoline advanced 8.8 percent last month, with regular fuel averaging $3.17 a gallon in February, according to AAA, the nation’s largest motorist organization. It reached $3.43 a gallon on March 2, the highest price since October 2008.
The Tempe, Arizona-based ISM’s services survey covers industries that range from utilities and retailing to health care, finance and transportation.
The services index averaged 56.1 in the five years to December 2007, when the last recession began. It’s averaged 52.1 since the current recovery started in June 2009 through December. The employment gauge increased to 55.6, the highest since April 2006, from 54.5 a month earlier.
Today’s report on services follows the group’s March 1 figures that showed manufacturing grew in February at the fastest pace since May 2004 as orders, exports and employment climbed.
Another report from the Labor Department today showed worker productivity increased in the fourth quarter at a faster pace as companies sought to pare costs to preserve profits.
The measure of employee output per hour rose at an unrevised 2.6 percent annual rate after a third-quarter gain of 2.3 percent. Labor expenses fell for a second straight year.