Orders Propel U.S. Service Industries as Sales Improve

Services, the biggest chunk of the U.S. economy, picked up in April as gains in orders and sales signaled even faster growth ahead.

The Institute for Supply Management’s non-manufacturing index rose to 55.2, the highest level since August, from 53.1 in March, the Tempe, Arizona-based group’s report showed today. Readings above 50 indicate expansion. Bookings jumped by the most in four years.

Retailers, restaurants and construction companies were among the 14 industries reporting growth last month as the world’s biggest economy rebounds from a weak first quarter. Increased hiring sets the stage for stronger consumer spending that will benefit companies such as United Parcel Service Inc.

“It’s a solid report, consistent with what we saw in the April employment numbers and in manufacturing,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, who projected a reading of 55. “The economy is emerging nicely from the winter doldrums.”

The ISM’s gauge of orders jumped to 58.2 last month from 53.4 in March, the biggest gain since March 2010. Demand, measured by the group’s business activity index, registered the strongest one-month increase in more than six years.

“Confidence is building,” Anthony Nieves, chairman of the survey, said on a conference call with reporters. “Employment has to increase in this sector if business keeps growing.”

Survey Results

The median forecast in a Bloomberg survey called for 54 in the overall gauge for services, which account for almost 90 percent of the economy. Estimates from 69 economists ranged from 52 to 55.6. The ISM non-manufacturing survey covers an array of industries including utilities, retailing and health care. It also encompasses in construction and agriculture.

“It paints a better picture of the economy,” said Kathleen Bostjancic, an economist at Oxford Economics USA in New York. “We have a decent pace of job growth. It boosts confidence and will support consumer spending.”

Stocks rose, after benchmark indexes climbed to records last week, as the expansion in services offset concern over growth in China and political tensions in Ukraine. The Standard & Poor’s 500 Index climbed 0.2 percent to 1,884.66 at the close in New York.

Another report from London-based Markit Economics showed U.S. services continued to grow in April. A final reading for the month eased to 55 from 55.3.

Factory Index

The purchasing managers group’s report last week showed manufacturing accelerated in April as the factory index climbed to the highest level of the year.

Today’s figures show the U.S. expansion is strengthening, while China cools and Europe struggles to pick up. Chinese manufacturing contracted for a fourth month in April, according to figures today from HSBC Holdings Plc and Markit.

The European Commission in Brussels forecast the 18-nation euro area will expand 1.7 percent in 2015, compared with a previous forecast of 1.8 percent.

The U.S. manufacturing sector accounts for about 12 percent of the economy. Sales are increasing at producers such as General Motors Co. and Whirlpool Corp. as the weather warms.

Demand is getting a boost as more Americans find work. Labor Department figures last week showed America’s job-creation machine kicked into higher gear in April. The 288,000 gain in payrolls exceeded the median forecast in a Bloomberg survey and followed a 203,000 advance in March. The unemployment rate fell to 6.3 percent, the lowest level since September 2008.

Gaining ‘Momentum’

“The economy has started the quarter with a lot of momentum,” said Markus Schomer, chief economist at PineBridge Investments LLC in New York, who projected the ISM services index would rise to 55. “We have moderate but accelerating growth, inflation is no longer falling, and the Federal Reserve is expected to keep rates very low for a very long time.”

UPS, the world’s largest package-delivery company, is among businesses that anticipate more demand after a winter-depressed quarter. Atlanta-based UPS is viewed as an economic bellwether because it delivers a variety of goods, from financial documents to electronics and appliances, around the globe.

“We expect the pace of U.S. economic growth to pick up as 2014 progresses,” Scott Davis, chief executive officer, said on an earnings call on April 24. “The macroeconomic environment looks decent as we move forward” in U.S. and global markets.

MasterCard Inc., the second-biggest payments network, on May 1 reported first-quarter profit that beat analysts’ estimates as customers increased spending using their credit and debit cards. Net income also topped analysts’ projections at American Express Co., the biggest U.S. credit-card issuer by purchases, which reported results last month.

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