Service Industries Grow at About Same Pace as Prior Month
Service industries grew in March at about the same pace as a month earlier, indicating the biggest part of the U.S. economy is holding up.
The Institute for Supply Management’s non-manufacturing index cooled to 56.5 from the prior month’s 56.9, the Tempe, Arizona-based group said Monday. A gauge above 50 shows expansion and the March reading matched the median estimate in a Bloomberg survey of economists.
Orders accelerated in March and employment kept expanding, signaling growth will probably strengthen after a first-quarter pullback that took a toll on manufacturing. Consumers, who have had success finding jobs, are helping fuel sales at industries that account for almost 90% of the economy.
“The overall fundamentals for domestic demand are still good,” said Kevin Cummins, an economist for UBS Securities in New York, who correctly projected the ISM reading. “We’re seeing income growth and job growth. The recovery should continue, and be led by the consumer.”
Estimates of the 71 economists in the Bloomberg News survey ranged from 53 to 58.5. The non-manufacturing index averaged 56.3 last year, compared with 54.6 in 2013.
The services survey covers an array of industries including utilities, retailing, health care and finance. It also factors in construction and agriculture.
Management and support services, real estate firms, rental companies led the list of the 14 non-manufacturing industries that reported growth in March.
A separate gauge showed a faster rate of expansion in service industries. The Markit Economics final March index rose to a seven-month high of 59.2 from 57.1 in February, the London-based group said Monday.
“The latest survey highlights a strong underlying pace of U.S. economic growth moving into the second quarter,” Tim Moore, senior economist at Markit, said in a statement. “New business trends across the service sector have picked up especially sharply from the lows seen earlier in the year, and hiring has strengthened as a result.”
ISM’s measure of new orders among non-manufacturing industries climbed to 57.8 in March from 56.7 the prior month. The group’s employment gauge rose to 56.6 from 56.4 in February.
The business activity measure, which parallels the ISM’s factory production gauge, fell to 57.5 from 59.4 in February. A measure of prices paid advanced to 52.4 from 49.7 the prior month.
The employment index “is a strong indicator of what we see for this sector,” Anthony Nieves, chairman of the ISM’s services survey, said on a conference call with reporters after the release. “Companies within these industries still feel strongly about business conditions. Employment is a good indicator that they have that confidence level.
The group’s manufacturing index, released last week, declined to 51.5 in March, which was the lowest since May 2013. A measure of exports contracted for a third month, indicating a stronger dollar is making it difficult for factories to drum up overseas sales.
The economy probably expanded at a 1.5% annualized pace in the first quarter, according to the median estimate in a Bloomberg survey of economists from March 30 to April 1. That’s down from a 2.2% rate in the last three months of 2014.
Consumer spending, which climbed in the fourth quarter at the fastest pace in almost nine years, barely rose in February after declining a month earlier. Adjusted for inflation, purchases rose 0.3% in January after falling 0.1% the prior month, according to Commerce Department data.
Household consumption expanded at a 4.4% annualized rate from October through December, boosted by low fuel prices and job gains in 2014, according to Commerce Department data.
The pickup in the ISM’s non-manufacturing employment gauge indicates the job market may be set to improve after the Labor Department reported Friday the smallest gain in payrolls since December 2013. The 126,000 increase broke a yearlong string of monthly gains exceeding 200,000, which was the longest such stretch since 1995.
Even with the economy’s setback in the first quarter, March auto sales figures indicate consumers may be gearing up to spend. Motor vehicle purchases advanced to a 17.1 million annualized rate, matching the strongest pace since August, based on figures from Ward’s Automotive Group.
“We expect a firming labor market and still-low fuel prices and interest rates to support renewed momentum in economic activity as spring takes hold,” Emily Kolinski Morris, chief economist at Ford Motor Co., said on an April 1 sales call.
Still-cheap gasoline is helping boost disposable income. The nationwide average cost of a gallon was $2.39 on Sunday, down from a high of $3.70 a year earlier, according to figures from AAA, the largest U.S. auto group.
