Services gauge in US unexpectedly climbs to one-year high

ISM climbs to 57.3 from 56.8 in January

March 5 (Bloomberg) -- Service industries in the U.S. unexpectedly 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, Arizona- based group’s data showed today. Readings above 50 signal expansion, and the median forecast of economists surveyed by Bloomberg News was 56.

A pickup in the services industries that make up almost 90 percent of the economy would strengthen the expansion, helping drive further labor market gains that will help sustain household demand. At the same, rising gasoline prices represent a risk to the recovery Federal Reserve Chairman Ben S. Bernanke said last week is “uneven and modest.”

“The momentum that we’ve been generating in the economy is starting to broaden,” said Robert Dye, chief economist at Comerica Inc. in Dallas. “As we get stronger job growth, we’ll see more lift to the economy in the second half of the year.”

Estimates of the 66 economists in the Bloomberg survey ranged from 54 to 59.

A separate report today showed orders to U.S. factories decreased in January for the first time in three months, a sign manufacturing was cooling at the beginning of the year.

Bookings fell 1 percent after a revised 1.4 percent gain in December that was larger than previously estimated, figures from the Commerce Department showed. The median of 61 economists’ projections in a Bloomberg News survey called for a 1.5 percent decline.

Stocks extended losses after the reports, with the Standard & Poor’s 500 Index falling 0.6 percent to 1,361.91 at 10:35 a.m. in New York.

Orders Climb

The ISM non-manufacturing survey’s employment gauge fell to 55.7 from 57.4 in the prior month, which was the highest since February 2006. 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.

Growth Forecasts

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.”

Still, 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.

Job Market

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,” Chief Executive Officer 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.

‘Modest’ Pace

“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.”

Bloomberg News

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