Services Growth Helps U.S. Endure Global Slowdown: Economy

Service providers including restaurants and retailers expanded at a faster pace in January, indicating persistent household spending is helping the U.S. endure weakness overseas.

The Institute for Supply Management’s non-manufacturing index advanced to 56.7 from a six-month low of 56.5 in December, the Tempe, Arizona-based group said Wednesday. Figures above 50 signal expansion. Companies added more than 200,000 workers last month, signaling steady labor-market growth, according to another report.

Job gains and more disposable income as gasoline prices hold close to $2 a gallon are encouraging Americans to shop after the biggest quarterly spending gain in almost nine years. That’s benefiting service industries and is a source of support for the economy at a time when the nation’s factories contend with weaker equipment demand and export markets.

“Consumers are still going to be one of the major generators of growth this quarter,” said Sarah House, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who projected an ISM reading of 56.6. The gain “is a little bit of a relief, and a good sign that the economy continues to growth at a decent clip.”

The improvement coincided with more hiring. ADP Research Institute said Wednesday that employment at companies climbed 213,000 in January after a 253,000 gain a month earlier that was larger than initially reported.

The labor market is demonstrating that it can keep adding jobs even as slumping energy prices hurt industries exposed to oil. A Labor Department report on Friday is projected to show the world’s largest economy added 230,000 jobs last month, including those at government agencies.

Labor Market

It “shows a good deal of resilience in the labor market,” said Sean Incremona, a senior economist at 4Cast Inc. in New York, who projected a 215,000 payroll gain. “We might not be as stellar as we were a couple months ago, but it is still a very respectable picture.”

Goods-producing industries, which include manufacturers and builders, boosted headcounts by 31,000 last month, the Roseland, New Jersey-based ADP said. Hiring in construction increased by 18,000 jobs, while factories added 14,000 positions. Service providers increased staff by 183,000.

The Standard & Poor’s 500 Index fell, after the biggest two-day rally in almost a month, as oil retreated and the European Central Bank tightened its rules on Greece’s bailout. The S&P 500 dropped 0.4 percent to 2,041.51 at the close in New York.

By Industry

Eight non-manufacturing industries reported growth in January, led by food services and finance. Mining, including the oil and gas sector, led the eight that contracted.

The ISM’s survey covers an array of industries including utilities, retail and health care, along with construction and agriculture. The median forecast of 73 economists surveyed by Bloomberg called for a January reading of 56.4.

The improvement in January stands in contrast to the group’s factory survey that was released on Feb. 2. The ISM manufacturing index fell last month to the lowest level in a year as gauges of orders, production, exports and employment retreated.

A measure of orders among service providers improved in January along with a gauge of business activity, which parallels the ISM’s factory production gauge.

Services Employment

The report also contained a weak spot. The group’s index of employment at service providers decreased to the lowest level in almost a year.

Sustained job creation and lower fuel bills are lifting Americans’ confidence and boosting purchasing power. The addition of almost 3 million jobs and a falling unemployment rate helped make 2014 the best year for the labor market since 1999.

Gasoline is the cheapest since 2009. The price of a gallon of regular gasoline was $2.11 on Feb. 3, close to a recent low of $2.03 on Jan. 25, according to U.S. auto group AAA. That’s among reasons the University of Michigan consumer sentiment index jumped in January to an 11-year high.

The improvement is filtering through to consumer spending, which grew in the fourth quarter at a 4.3 percent annualized pace, the most since 2006. The economy advanced at a 2.6 percent rate, according to Commerce Department data.

Carmakers and auto dealerships are benefiting from strong demand, with readily available credit and an aging vehicle fleet projected to help the industry achieve a record sixth straight year of increases. General Motors Co. and Ford Motor Co. led automakers with the biggest U.S. auto-sales gains in January.

‘Favorable Tailwinds’

“Leading indicators remain robust with some favorable tailwinds that should support growth” this year, Emily Kolinski Morris, Ford’s chief economist, told analysts and reporters on a conference call on Tuesday. “Low fuel prices provide a significant boost to consumer disposable income and employment conditions remain on a positive track.”

Housing probably will keep improving as well. New residential construction rose in December to cap the best year since 2007, boosted by the improving labor market and mortgage costs close to multiyear lows.

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