Services in U.S. Pick Up for First Time in Five Months

Updated on
  • Twelve of 18 industries show growth, led by education
  • Survey chairman sees `a little bit more confidence in the air'

Growth in America’s service industries accelerated in March for the first time in five months, indicating the economy was improving after a sluggish start to the year.

The Institute for Supply Management’s non-manufacturing index, covering industries including construction, finance and retailing, rose to 54.5 from 53.4 in February, the Tempe, Arizona-based group’s data showed Tuesday. Readings above 50 signal expansion. The median forecast in a Bloomberg survey called for 54.2.

The pickup in the industries that account for almost 90 percent of the economy allays concerns that headwinds such as plunging commodity prices and lukewarm foreign demand were spilling more broadly across the U.S. Reports last week showed the worst of the manufacturing slump is over, hiring is robust and wages are rising.

“The economy seems to be humming along pretty good here,” Anthony Nieves, ISM services survey chairman, said on a conference call with reporters. “Now there’s a little bit more confidence in the air” and hiring is expected to grow, he said.

The estimates of economists in the Bloomberg survey for the ISM services index ranged from 52 to 55.5.

The group’s factory survey released on April 1 showed manufacturing expanded in March for the first time in seven months, fueled by the strongest new orders since November 2014.

Broad Gauge

The ISM non-manufacturing survey covers an array of industries including utilities, retailing, housing and health care, in addition to construction and agriculture.

Twelve of 18 industries showed growth last month, led by educational services and information, according to the report.

“The improvement should come as a relief to those who were concerned early in the year that the U.S. would slide into a recession,” said Dana Saporta, a U.S. economist at Credit Suisse Securities USA in New York. “Those fears have diminished greatly. Recent U.S. economic data really don’t look that bad. We have moderate growth despite continued headwinds.”

Details of the services survey showed the business activity index increased to 59.8 from the prior month’s 57.8. The measure parallels the ISM’s factory production gauge.

The new orders measure advanced to 56.7 from 55.5. A measure of supplier deliveries improved to 51 from 50.5.

The index of prices paid advanced to 49.1 from a more than six-year low of 45.5.

Employment Rebound

There was better news on the jobs front following February’s weak reading that had triggered concern about service providers’ staffing plans. The ISM services employment index rose to 50.3 in March from 49.7 the prior month.

The nation’s labor market continues to strengthen, a Labor Department report showed Friday. Employers added 215,000 workers to payrolls in March after a 245,000 February advance, and average hourly earnings increased 0.3 percent from a month earlier. The jobless rate edged up to 5 percent as more people entered the labor force.

“On balance, overall employment has continued to grow at a solid pace so far this year, in part because domestic household spending has been sufficiently strong to offset the drag coming from abroad,” Federal Reserve Chair Janet Yellen said in a March 29 speech.

(Updates with ISM comment in fourth paragraph and number of industries expanding in eighth.)