Services in U.S. expanded at fastest pace in 10 months

Factory Gauge

The ISM’s manufacturing index, released Jan. 2, showed the industry grew last month, one indication the economic expansion will be sustained in 2013. The factory gauge climbed to 50.7 from a three year-low of 49.5 in November as orders, employment and exports grew.

While the factory sector had stumbled in prior months as concerns over higher taxes and government budget cuts caused businesses to reduce investment, the services industry continued to grow. Consumer spending and rising housing activity helped keep the economy expanding during that period.

Macy’s Inc. and Gap Inc. yesterday reported December same-store sales that topped analysts’ estimates. Demand at Macy’s, the second-biggest U.S. department-store company, rose 4.1 percent, from a year earlier exceeding the average projection of 3.7 percent from analysts surveyed by researcher Retail Metrics Inc. Gap, the largest U.S. specialty-apparel retailer, posted a 5 percent gain, topping the 3.6 percent estimate.

Housing Strength

Meanwhile, residential real estate gained momentum going into the end of 2012. Existing-home sales reached a three-year high in November. New-home sales advanced 4.4 percent to a 377,000 annual pace last month, the highest level since April 2010, the Commerce Department reported last month. Homebuilding outlays increased 0.4 percent last month to a $295.3 billion annual rate, the most since November 2008.

At the same time, higher taxes on households may suppress spending. Following the congressional budget deal earlier this week, workers will see payroll taxes rise by two percentage points, while the wealthiest Americans will also pay higher income taxes. Together, those measures are projected to reduce growth in the first quarter to 1 percent, from 3.1 percent in 2012’s third quarter, the latest data available, according to economists at JPMorgan Chase & Co. and Bank of America Corp.

Bloomberg News

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