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Service Sector, Productivity Surge

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From Reuters

The U.S. service sector surged in November while worker productivity grew at a rapid clip in the third quarter, two reports said Wednesday, both encouraging signs for the struggling economy.

A closely watched index of the U.S. service industry -- which includes a large swath of businesses ranging from entertainment to banking -- logged its best reading in six months and marked a huge surge in new orders that could bode well for future growth.

Productivity, which measures the amount of goods and services produced for each hour of work, ran at the fastest pace in nearly three decades on a year-over-year basis as companies wrestled to improve profits by making the most of existing resources.

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Economists remained cautious, however, about the economy’s overall strength ahead of a report on national employment due Friday that is likely to show few new jobs were created in November and a slight rise in the jobless rate.

The non-manufacturing report stood in contrast to a factory index, also issued by the Tempe, Ariz.-based Institute for Supply Management on Monday, that showed U.S. manufacturing in a third consecutive month of contraction.

ISM said its index of activity in the non-manufacturing sector surged to 57.4 in November, handily beating market expectations of a more modest pick-up to 53.7 and a reading of 53.1 in October. It was the 10th straight month that the index was above the 50 mark that divides contraction and expansion.

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The non-manufacturing new orders index, an indicator of future growth, shot up to 58.0 in November after dropping in October to 50.9, its lowest point since January.

A separate government report said factory orders gained 1.5% in October, compared with a revised 2.4% dip in September. The same data showed October durable goods orders were revised down to a gain of 2.4% from a previously reported 2.8% rise.

Earlier, the Labor Department said workers outside the farm sector boosted third-quarter productivity by 5.1% over the second quarter. That was up from an initial estimate of 4% and outstripped forecasts of a 4.9% gain.

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