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Service Sector Growing Again, ISM Says
Reuters
Monday 05 May 2008
New York - The service sector grew unexpectedly in April, snapping a three-month period of contraction, according to a report released Monday.
The Institute for Supply Management's non-manufacturing index came in at 52.0 in April vs. 49.6 in March.
A reading above 50 indicates growth in the service sector.
Economists had expected a reading of 49.1 for April, according to the median of forecasts in a Reuters poll.
After the report, investors factored in a smaller chance that the Federal Reserve would cut interest rates again when it meets in June.
The news follows data on Friday showing the U.S. economy lost far fewer jobs in April than expected, lending support to investors hoping the current slowdown will be relatively mild.
"The report is consistent with the trend we have been seeing that the U.S. economy is not as disappointing as many initially thought," said Nick Bennenbroek, head of foreign exchange strategy at Wells Fargo in New York.
But Citigroup economist Steven Wieting said he took the reading with a grain of salt, saying the service report "has a much more limited history" than its long-running and important manufacturing index.
"Some of the industries that showed up in the 'improving' column were construction and real estate," Wieting said. "I'm sure we're going to see that someday. I'd just like confirmation."
The Institute for Supply Management's recent reading of the manufacturing sector contracted in April, stalled near its lowest level in five years.
Even with the positive reading for the service economy, "I think it indicates that the non-manufacturing sector is bordering on zero growth," said Dan Meckstroth, chief economist of the Manufacturers Alliance, a trade group. "It fits with a scenario of a very mild recession."
Consistent with the surprisingly resilient jobs data, ISM's non-manufacturing employment index rose to 50.8 from 46.9 in March. This marked the biggest improvement in the jobs picture for services since September 2007.
The services index fell steeply in January to 44.6, its first drop below 50 since March 2003, and was below 50 in February and March.
The service sector represents about 80% of U.S. economic activity, including businesses such as banks, airlines, hotels and restaurants.
Contributing: The Associated Press.
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