Services in U.S. expand at a faster pace than forecast

INCREASED SALES of autos, the start of the holiday shopping season, and a pickup in homebuilding are driving gains at companies that account for almost 90 percent of the economy.
Posted 12/5/12

WASHIGNTON - Service industries in the U.S. expanded at a faster pace than forecast in November, indicating the economy is holding up in the face of the so-called fiscal cliff.

The Institute for Supply Management’s non-manufacturing index rose to 54.7 last month from 54.2 in October, the Tempe, Arizona-based group said today. Economists projected the index would ease to 53.5, according to the median estimate in a Bloomberg survey. Readings above 50 signal expansion.

Increased sales of autos, the start of the holiday shopping season, and a pickup in homebuilding are driving gains at companies that account for almost 90 percent of the economy. Growth at service producers is helping underpin the expansion as slower capital investment and weaker overseas demand hamper manufacturing.

“The U.S. economy looks like it’s going to continue to grow at a moderate pace,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, who projected a 54.5 reading. “Construction, retailing and some transportation picked up more of what we’re seeing in a lot of other data -- a nice rebound. Plus, auto sales were extremely strong.”

Estimates in the Bloomberg survey of 75 economists ranged from 51 to 54.7. The index has averaged 53.4 since the recession ended in June 2009.

Stocks declined as investors monitored developments on budget negotiations. The Standard & Poor’s 500 Index fell 0.2 percent to 1,403.97 at 10:41 a.m. in New York.

Orders jump

The survey’s employment gauge fell to 50.3, the lowest since July, from 54.9 in the prior month. The measure of new orders increased to 58.1 from 54.8. A gauge of business activity rose to 61.2, the highest since February, from 55.4. The index of prices paid fell to 57 from 65.6.

The ISM’s manufacturing index, released Dec. 3, unexpectedly contracted last month to the lowest level since July 2009. Manufacturers pointed to the uncertainty surrounding the so-called fiscal cliff of spending cuts and tax increases as the major reason for the slowdown, rather than Sandy, survey chairman Bradley Holcomb said.

The services sector, which includes industries ranging from utilities and retailing to health care, housing and finance, is less dependent on capital spending, which has declined in the face of the fiscal cliff, and export demand, which has weakened as the euro-zone economy contracts.

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