US service firms grew at faster pace in December

AP News
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Posted: Jan 05, 2012 11:32 AM
US service firms grew at faster pace in December

U.S. service companies grew at a faster pace in December, helped by an economy that gained strength in the final months of the year.

An increase in new orders and stronger imports drove the modest expansion in a sector that employs roughly 90 percent of the work force. But a gauge of hiring showed many service firms were hesitant to add workers.

The Institute for Supply Management says its index of non-manufacturing activity rose to 52.6 in December. That's slightly above the reading of 52 in November, which was the lowest since January 2010, but well below last year's high of 59.7 recorded in February.

Any reading above 50 indicates expansion.

The trade group of purchasing managers surveys a range of businesses, including restaurants, hotels, retailers, financial service firms and construction companies.

The companies reported seeing an increase in new orders, which suggests January could be even stronger for service companies.

One concern is that many companies say they are in a holding pattern on hiring. An employment index in the survey stayed below 50 for the third time in four months. That's a sign that service firms are not adding many workers _ and in some cases may be cutting them.

Still, the hiring index conflicts with other data showing stronger job growth in the final months of last year.

Applications for unemployment benefits fell further last week and were just above the lowest level in more than three years. Employers have added an average of 143,000 net jobs a month from September through November _ double the pace for the previous three months. And the unemployment rate fell in November to 8.6 percent _ the lowest level in three and a half years.

On Friday, the government reports on December job growth and unemployment. Economists forecast that employers added 150,000 net jobs. And they expect the unemployment rate ticked up to 8.7 percent.

For December, 11 non-manufacturing industries reported growth, led by retailers. Seven industries reported weaker activity including agriculture and forestry.

"The key services sector is growing a little faster, but it has yet to really pick up steam," said Joel Naroff, chief economist at Naroff Economic Advisors.

Many retailers benefited last month from solid holiday sales. They also reported that a flurry of post-Christmas bargain shopping helped drive sales higher in the last week of December.

Sales at stores open at least one year rose 5.3 percent during the week ending Saturday, compared with the same period a year ago. The report came from the International Council of Shopping Centers and Goldman Sachs Weekly Chain Store Sales Index, which estimates sales for 24 major stores like Target Corp. and Costco Wholesale Corp.

Other data suggest the economy ended 2011 with some momentum.

U.S. factories grew in December at the fastest rate since June, according to ISM's manufacturing index. Consumer confidence rose to the highest level since April, according to the Conference Board.

The economy likely grew at an annual rate of 3 percent or more in the final three months of this year, analysts say. That would top the 1.8 percent growth rate in the July-September quarter, and the 0.9 percent growth rate in the first half of the year.