Services Growth Near Nine-Year High Propels U.S.: Economy

Service providers from U.S. retailers to builders expanded in November at the second-fastest pace in more than nine years, indicating the world’s largest economy is forging ahead through a global slowdown.

The Institute for Supply Management’s non-manufacturing index rose to 59.3, the second-highest level since August 2005, from 57.1 in October, the Tempe, Arizona-based group said today. The figure exceeded the highest projection in a Bloomberg survey of 78 economists.

The report “suggests continued momentum in fourth-quarter growth,” said Samuel Coffin, an economist at UBS Securities LLC in New York who is among the best forecasters of the services gauge in the past two years, according to data compiled by Bloomberg. “Confidence has been moving up and household wealth has been picking up for a while. The whole household sector is doing pretty well.”

More service industries than at any time since March 2010 reported an increase in bookings as falling gasoline prices and unemployment put American consumers in a better position to spend. Cars rolled off auto dealer lots last month at the second-fastest pace in eight years and Wal-Mart Stores Inc. said it had a record number of orders through its website two days ago.

The labor market continued to make steady progress last month as well, another report showed. Private payrolls climbed 208,000 in November after a revised 233,000 gain a month earlier, Roseland, New Jersey-based ADP Research Institute said. Employment at service providers rose by 176,000, the group said.

Labor Market

It’s “steady as she goes in the job market,” Mark Zandi, chief economist at Moody’s Analytics Inc., said in a statement. Moody’s produces the figures with ADP. “At this pace the unemployment rate will drop by half a percentage point per annum. The tightening in the job market will soon prompt acceleration in wage growth.”

The Federal Reserve said today in its Beige Book business survey, based on reports gathered on or before Nov. 24, that “employment gains were widespread across districts.” Consumer spending kept rising, helped in part by lower fuel prices, and “a number of districts also noted that contacts remained optimistic about the outlook for future economic activity.”

A Labor Department report in two days is projected to show the jobless rate held at a six-year low of 5.8 percent, while employers took on 230,000 jobs.

Stocks rose, sending the Standard & Poor’s 500 Index to a record, as the reports boosted confidence in the economy. The S&P 500 climbed 0.4 percent to 2,074.33 at the close in New York.

Euro-area Services

American service providers are faring better than their competitors abroad. Growth at euro-area services companies deteriorated in November to the lowest level this year, according to figures from Markit Economics in London.

Fourteen U.S. non-manufacturing industries reported growth in their businesses last month, led by retailers and construction companies, while the same number indicated a pickup in orders, the ISM’s report showed. The survey covers an array of sectors including utilities, retailing, health care and finance that make up almost 90 percent of the economy. It also encompasses construction and agriculture.

The median forecast of economists in the Bloomberg survey was 57.5, with estimates ranging from 54.4 to 59.1. Figures above 50 indicate expansion. The non-manufacturing index has averaged 56.3 this year, compared with 54.7 in all of 2013. November’s reading was just shy of the nine-year high of 59.6 reached in August.

New Orders

The new orders gauge for service companies increased to a three-month high in November. Some 37 percent of purchasing managers reported an increase in demand. The share matched March 2010 as the highest since April 2006.

The business activity index, which parallels the ISM’s factory production gauge, rose to the third-highest reading since the end of 2004. The measure of services employment decreased from a nine-year high a month earlier.

Stronger demand is leading to longer delivery times. The ISM’s measure of supplier deliveries matched its second-strongest reading since 2008, while a gauge of order backlogs was the highest since April 2011.

Car dealers are among service providers enjoying stronger demand. Motor vehicles sold in November at a 17.1 million annualized pace, according to figures yesterday from Ward’s Automotive Group. In August, the rate was 17.5 million, the most since January 2006.

Factory Growth

The pickup is helping bolster the nation’s factories as well. Earlier this week, the ISM said its manufacturing index held near the strongest pace in three years. The figure was little changed at 58.7, the second-highest level since April 2011, compared with 59 in October. The factory orders index climbed and its average over the past four months is the highest in a decade.

Persistent job growth and rising consumer confidence will probably provide support for U.S. growth as retailers compete for customers in their most important sales period of the year. Merchants such as Wal-Mart are extending discounts to lure those whose wages have been slow to pick up with the pace of hiring.

Wal-Mart, which is among those spreading out its promotions this holiday-shopping season, said yesterday that customers viewed more than 1.5 billion pages on in the five days through Dec. 1, also known as Cyber Monday. The Bentonville, Arkansas-based retailer didn’t disclose sales figures.

Pump Prices

Lower fuel costs are helping make income gains seem bigger. The average price of a gallon of regular gasoline was $2.75 yesterday, the cheapest since October 2010.

That’s helping the outlook for companies such as Cracker Barrel Old Country Store Inc. The Lebanon, Tennessee-based restaurant chain reported sales and earnings that beat analysts’ estimates in the quarter ended Oct. 31 as traffic rose from the year before.

“The gas price really speaks to disposable income from consumers,” Chief Executive Officer Sandra Cochran said on a Nov. 25 conference call. “So certainly during the quarter, we saw the benefit of lower gas prices and would hope to see continued benefit if gas prices stay low certainly in the second quarter from that.”

Before it's here, it's on the Bloomberg Terminal.