U.S. service industries unexpectedly expanded in April as the fighting in Iraq drew to a close, helping to boost consumer spending and lift the biggest part of the economy, according to a report released Monday.
The Institute for Supply Management’s index for retail, financial services, construction and other non-manufacturing businesses rose to 50.7 last month from 47.9 in March. Readings above 50 indicate expansion.
Services account for 85% of the economy, and a sustained increase may reinforce some economists’ expectations for an acceleration of growth later this year.
“These results are in keeping with earlier optimism that the economy would return to a growth path once the war was over,” said Chris Low, chief economist at FTN Financial in New York.
“While all components of the index fall short of prewar levels, there is reason for some optimism,” especially after the institute’s disappointing manufacturing report last week, he said.
The report comes a day before Federal Reserve policymakers meet on interest rates. Only one of the 70 economists surveyed by Bloomberg expects the Fed to cut the benchmark overnight bank rate from its 40-year low of 1.25%.
What the Fed may do is take a step in that direction by announcing that the greatest risk to the economy is slow growth.
The transportation industry showed the highest rate of growth in April, along with insurance, real estate and retail services, according to the report.
The Tempe, Ariz., institute’s index is based on a survey of more than 370 retailers, wholesalers, transportation firms and other non-manufacturers.
“What we are seeing this month, at least from the retailers, is very positive for consumer spending,” said Ralph Kauffman, chairman of the group’s non-manufacturing committee.
Monday’s report showed that the index of new orders for non-manufacturing companies rose to 50.6 last month from 47.7 in March. Order backlogs decreased to 46 from 47.5. The employment index rose to 48.2 from 47.9.
The group’s index of prices paid, a measure of costs for purchased materials and services, fell to 56.7 in April from 62. The inventory index rose to 51 last month from 49.5.
The index of export orders increased to 52.5 from 48.5, and import orders decreased to 50 from 55.
Four of the report’s 10 indexes -- business activity, new orders, employment and imports -- are adjusted for seasonal patterns. The others are unadjusted.