Service industry index increases
Rise may signal economy gaining
WASHINGTON - Service industries in the United States unexpectedly grew for the first time since December, helping the economy weather a credit contraction and manufacturing downturn.
The Institute for Supply Management's index of nonmanufacturing businesses, which make up almost 90 percent of the economy, rose to 52 in April from 49.6 the prior month, the Tempe, Ariz.-based ISM said. Readings greater than 50 signal growth.
"This is definitely a positive indication that some of the worst outcomes that people are expecting won't be realized," said Julia Coronado, senior US economist at Barclays Capital Inc. in New York. "The economy will weather a period of very weak growth followed by a modest pickup later in the year."
The expansion in services such as recreation, real-estate leasing, and engineering, helps offset the impact from manufacturing, which has shrunk the past three months, according to the ISM. The figure also may reinforce expectations that the Federal Reserve will refrain from lowering interest rates further after the fastest reductions in two decades this year.
The index was projected to ease to 49.1, the median forecast in a Bloomberg News survey of 68 economists. Estimates ranged from 51 to 47.5.
"We really have to temper this by saying you really have to wait and see," Rudy Narvas, senior economist at 4Cast Ltd., said. "Otherwise, it looks like a very promising number."
The services measure contracted in the prior three months. The last time the index was less than 50 for at least three consecutive months was in 2001-2002 as the economy was emerging from a recession.
An index of employment rose to 50.8, the highest level so far this year, from 46.9, and a gauge of supplier deliveries increased to 56 from 49.
The ISM group's index of new orders for nonmanufacturing industries fell to 50.1 from 50.2 the prior month.
A measure of prices paid rose to 72 from 70.8.
The ISM factory index, reported last week, was unchanged at 48.6 in April as manufacturing shrank for the third consecutive month.
Builders, which are included in the ISM services index, have been cutting back. Investment in residential construction projects fell at an annual rate of 27 percent in the first quarter, the most since 1981, the Commerce Department reported last week. Declines in home building have subtracted from growth since the first three months of 2006.
The economy grew at a 0.6 percent annual rate in the first quarter, matching the pace in the last three months of 2007. Consumer spending rose at the weakest pace since 2001, hurt by a decline in purchases of long-lasting goods such as cars.
The share of banks making it tougher for companies and consumers to borrow approached a record in the past three months, according to the Fed's quarterly survey of senior loan officers, issued yesterday. A net 70 percent of banks increased loan rates over their cost of funds for commercial and industrial borrowing, the report also showed.
Former Fed chairman Alan Greenspan said the United States has slipped into an "awfully pale recession" and may continue to languish for the rest of the year.
"We are clearly receding," with economic growth now at about zero percent, he said last week. 