Services Sector Logs Record Growth

The U.S. services sector, which accounts for 80% of the economy, grew at a record pace in April, fueled by higher employment and a jump in new orders, an industry survey showed Wednesday.

The Institute for Supply Management’s non-manufacturing index rose to 68.4 in April from 65.8 in March, above Wall Street estimates of a dip to 64. A number above 50 indicates growth.

“This was yet another very impressive report from ISM,” said Doug Porter, senior economist at BMO Nesbitt Burns in Toronto.

“It was strong from top to bottom with nothing to quibble about on the growth front. The report continues to flag worries about inflation pressures, both in the prices-paid component and in the increasing order backlogs,” Porter said.

The survey’s employment index rose in April, to 54.5 from 53.9, while demand for new orders grew, with that index increasing to 65.6 from 62.8.

The prices-paid component rose to 68.6 from 65.7 in March.

“It’s a strong report,” said Cary Leahey, senior U.S. economist at Deutsche Bank Securities in New York. “The overall index is up more than consensus. New orders are 3 points higher. Employment is slightly higher. It’s a good, solid number.

“Yet another survey of the economy is suggesting sustainable strength.”

The report provided evidence of recovery in the non-manufacturing sectors and complements earlier reports on the manufacturing sector. That bodes well for economic growth.

“We are seeing a very positive feedback between the manufacturing and non-manufacturing sides of the economy,” said Lynn Reaser, chief economist at Banc of America Capital Management in St. Louis. “The employment index is up, which is good news. The second quarter could be another strong quarter for the economy.”

The services sector includes restaurants, hotels, banks and airlines.