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By Bob Willis
WASHINGTON - Service industries in the U.S. unexpected expanded in February at the fastest pace in a year as orders picked up for a fourth straight month.
The Institute for Supply Management’s non-manufacturing index climbed to 57.3 from 56.8 in January, the Tempe, Ariz.-based group’s data showed March 5. Readings above 50 signal expansion and the median forecast of 66 economists surveyed by Bloomberg News was 56.
A pickup in the services industries that make up almost 90 percent of the economy would help broaden the expansion, helping drive further labor market gains that will help sustain household demand. At the same, rising gasoline prices represents a risk to the recovery Federal Reserve Chairman Ben S. Bernanke said last week is “uneven and modest.”
“Things seem to be going in the right direction,” Paul Ashworth, chief U.S. economist at Capital Economics Ltd. in Toronto, said before the report. “Services have shown signs of improvement, mirroring what we’re seeing in the rest of the economy.”
Economists’ estimates in the Bloomberg survey ranged from 54 to 59.
The ISM non-manufacturing survey’s employment gauge fell to 55.7 from 57.4 in the prior month. The measure of new orders increased to 61.2, also a one-year high, from 59.4. A gauge of business activity rose to a 12-month high of 62.6 from 59.5. The index of prices paid climbed to 68.4 from 63.5.
The ISM services survey covers industries ranging from utilities and construction, to retailing and finance. A March 1 report by the group showed manufacturing expanded in February at the slowest pace in three months as orders and employment cooled.
The economy is projected to cool after growing in the final three months of last year at the fastest pace since the second quarter of 2010. Growth may average 2.2 percent in the first half, according to the median estimate of 81 economists surveyed by Bloomberg last month.
“For 2012, what we’re looking for is continued stable but moderate growth in the U.S.,” Kurt Kuehn, chief financial officer at United Parcel Service Inc., said at a Feb. 15 transportation services conference. “We think the U.S. economy is on the mend. We think the downside risk in the U.S. is lowered.”
Higher fuel costs are straining household budgets, restraining purchases of other goods. Gasoline prices climbed to $3.77 a gallon on March 4, up from a 10-month low of $3.21 on Dec. 20, according to AAA, the nation’s largest motoring organization.
Personal spending after adjusting for inflation failed to grow in the three months ended in January, the Commerce Department said last week.
At the same time, an improving job market has boosted consumer confidence and may spur spending. The unemployment rate in February held at a two-year low of 8.3 percent and the economy generated 210,000 jobs, according to economists’ estimates before the March 9 jobs report from the Labor Department. It would mark the third straight month of payroll gains in excess of 200,000.
Lowe’s Cos., the second-largest U.S. home-improvement retailer, last month reported fourth-quarter profit that exceeded analysts’ estimates after warmer weather encouraged outdoor projects.
“We do think the consumer is more willing to spend,” CEO Robert Niblock said on a conference call Feb. 27. “We know that future uncertainties are still weighing heavily on the consumer.”
The economy grew at a 3 percent annual pace in the fourth quarter after a 1.8 percent gain in the prior three months, the Commerce Department reported Feb. 29. The growth rate excluding a jump in inventories was 1.1 percent. Consumer spending rose at a 2.1 percent pace last quarter.
“The recovery of the U.S. economy continues, but the pace of expansion has been uneven and modest by historical standards,” Bernanke told lawmakers during his semiannual testimony to Congress on Feb. 29. “The job gains in recent months have been relatively widespread across industries,” he said. “However, the fundamentals that support spending continue to be weak.”