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Service sector index rises again, indicating strengthening economy

Strong consumer demand pushed a key measure of the economy's service sector to its highest level in more than four years, the latest evidence that the economy is gaining strength and that job growth could pick up in the new year.

The Institute for Supply Management, a trade group of purchasing executives, said Wednesday that its index of service sector activity rose to 57.1 in December. Any reading above 50 indicates growth.

Last month's reading was the highest since May 2006 and marked the 12th straight month of expansion for the sector, which employs 80 percent of the work force. The index plummeted to 37.2 in November 2008, at the height of the financial crisis. The sector contracted for all but two months in 2009, then began expanding last year.

The gains result largely from greater consumer spending.

Companies covered by the survey -- everything from health care to retail to financial services -- received the highest number of orders for business in five years. That, along with a solid year of expansion, suggests the broadly defined sector could be an engine of job growth this year.

Economists say increased demand for services could set off a virtuous cycle: Rising employment gives consumers the confidence -- and cash -- to spend more, and that prompts businesses to increase hiring.

"The spending side of the economy has turned a corner -- a necessary step toward promoting the employment growth that will put the economy into a clearly self-sustaining expansion," Pierre Ellis, an economist at Decision Economics, wrote in a note to clients.

Reports that last month capped the strongest holiday shopping seasons in years have boosted expectations. Consumers snapped up clothes, shoes, luxury goods and electronics. Analysts expect holiday sales rose at the fastest pace since 2006. Consumer spending accounts for 70 percent of economic activity.

Nine industries -- mining, retail trade, information, other services, utilities, finance and insurance, transportation and warehousing, professional services, and educational services -- reported increasing employment. Seven said they had reduced employment, and two reported no change.

The seven industries cutting jobs were construction; agriculture, forestry, fishing and hunting; arts, entertainment and recreation; hotels and restau-rants; health care; government; and wholesalers.

Prices are rising, the report said, for many commodities, including such metals as copper and steel, gasoline, and agricultural goods such as cotton and sugar. That could cut into the profit margins of many companies or force them to raise prices.

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