Services’ expansion encourages U.S. job gains

WASHINGTON – Service industries including retailers, builders and health care providers continued to expand in October, encouraging companies that make up the biggest part of the U.S. economy to boost hiring.

The Institute for Supply Management’s non-manufacturing index was at 57.1, exceeding the average for the first six months of the year, even though it was below the prior month’s 58.6. Readings greater than 50 signal growth.

The Tempe, Ariz.-based group’s measure of employment rose for a sixth straight month, reaching the highest level in more than nine years.

“The services sector of the economy is doing very well,” said Hugh Johnson, chairman of Hugh Johnson Advisors LLC in Albany, N.Y., who correctly forecast the October reading. “What’s really supporting the services expansion is to some extent the improvement in employment.”

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Another report today showing persistent progress in the labor market, along with falling prices at the gas pump, raises the odds that retailers will enjoy a brighter holiday-shopping season. The hurdle for the economy, and one that helped Republicans capture control of the Senate and solidify their majority in the House in midterm elections yesterday, is a lack of faster wage growth.

Private payrolls climbed 230,000 in October, the most since June, after a revised 225,000 gain a month earlier, Roseland, New Jersey-based ADP Research Institute said today. Employment at service producers rose by 181,000 last month, the group said.

‘Picking up’

“The job market is steadily picking up pace,” Mark Zandi, chief economist at Moody’s Analytics Inc., said in a statement. Moody’s produces the figures with ADP. “The job market will soon be tight enough to support a meaningful acceleration in wage growth.”

Goods-producing industries, which includes manufacturing and construction, increased headcount by 48,000 last month. Builders boosted payrolls by 28,000.

Stocks rose, sending benchmark indexes to records, after the election results and today’s data. The Standard & Poor’s 500 Index added 0.6 percent to 2,023.57 at the close in New York.

Republicans swept to control of the Senate for the first time in eight years on voter anger over President Barack Obama’s handling of the economy. The economy was voters’ most pressing concern, with seven of 10 rating conditions poor, preliminary exit polls showed.

Sixteen non-manufacturing industries reported growth in October, led by construction, retail and agriculture, and 10 boosted employment, the ISM’s report showed. The survey covers an array of industries including utilities, retailing, health care and finance that make up almost 90 percent of the economy.

U.K. services

Service companies in the U.S. are faring better than some of their global counterparts. In the U.K., growth in services expanded in October at the slowest pace in 17 months, according to figures from Markit Economics in London.

The median estimate in a Bloomberg survey of 79 economists for the U.S. ISM gauge was 58, with estimates ranging from 56 to 59.5. The non-manufacturing index averaged 54.4 in the first six months of this year.

The group’s measure of services employment climbed to 59.6 last month, the highest since August 2005, from 58.5 in September. A report in two days from the Labor Department is projected to show a 235,000 increase in payrolls in October, exceeding the 227,000 average for this year.

A gauge of new orders eased in October and the business activity index, which parallels the ISM’s factory production figure, also cooled. The group’s measure of prices paid decreased to a two-year low as fuel costs declined.

Manufacturing gains

Earlier this week, the ISM said its manufacturing index climbed in October to 59, matching August as the highest since March 2011. A gauge of production was the strongest in a decade.

Improving sentiment, job growth and lower gasoline prices will probably help underpin domestic demand even as companies grapple with slowing global markets.

The cost of a gallon of regular gasoline averaged $2.96 yesterday, the lowest since December 2010, according to motoring group AAA.

“Certainly, job growth is good for the consumer, and if the labor market continues to tighten, that should begin to be reflected in wages,” said David Sloan, senior economist at 4Cast Inc. in New York, who projected an ISM index reading of 57. “The lower gasoline prices are a significant boost to real income. I think overall, the consumer is in pretty good shape.”

Gaming industry

MGM Resorts International, the largest owner of casinos on the Las Vegas Strip, is optimistic such trends will generate more business.

Improving sentiment is “very important for us here in Las Vegas,” CEO James Joseph Murren said on an Oct. 30 earnings call. “People in general are feeling better with not only job security, the low interest rate environment, declining gas prices and we’re seeing that reflected in visitation and convention business.”

Faster wage gains would help provide an even bigger push for consumer spending that slowed at the end of the third quarter. Average hourly earnings were 2 percent higher in September than a year earlier, barely more than the increase in inflation, according to Labor Department data.

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