WASHINGTON (AP) — American service companies grew in February at the fastest pace in a year, buoyed by higher sales, more new orders and solid job growth. The gain suggests higher taxes have yet to slow consumer spending on services.
The Institute for Supply Management said on Tuesday that its index of nonmanufacturing activity rose to 56 in February from 55.2 in January. Any reading above 50 indicates expansion.
The report measures growth in industries that cover 90 percent of the work force, including retail, construction, health care and financial services. A solid recovery in the housing market helped drive the index higher.
Service companies also kept adding jobs last month. A measure of service sector hiring fell only slightly after reaching a nearly seven-year high in January.
“This survey does bode well for both activity and employment in the second quarter,” Paul Dales, an economist at Capital Economics, said in a note to clients.
In the I.S.M. survey, 13 of the 18 industries reported expansion, including construction, real estate, finance and insurance and utilities.
The growth suggested that Americans were spending more despite an increase in Social Security taxes that took effect on Jan. 1. The higher payroll taxes cost a household earning $50,000 about $1,000 a year; a household with two highly paid workers will have up to $4,500 less.
The companies surveyed by the I.S.M. cover many industries that are closely tied to consumer spending, like retail, hotels and restaurants, and arts and entertainment. And those companies expect consumers to keep spending. Order backlogs grew at the fastest pace in 20 months, a sign that many companies could not keep up with rising sales. Stockpiles also rose strongly.
Anthony Nieves, the chairman of the I.S.M. survey committee, said the increases in both categories pointed to higher future sales.
“Companies are gearing up for more volume, more activity,” Mr. Nieves said.
The report also pointed to continued growth in hiring at service companies last month. Labor Department figures showed that service and construction companies added an average of 195,000 jobs from November through January. The I.S.M. includes construction hiring in its service index; the Labor Department measures those jobs separately from service hiring.
The government will release the February employment report on Friday. Economists on average are expecting an increase of 160,000 jobs, with the unemployment rate holding steady at 7.9 percent, according to a survey by Bloomberg News.
Article source: http://www.nytimes.com/2013/03/06/business/economy/businesses-report-solid-growth-indicating-rise-in-consumer-spending.html?partner=rss&emc=rss