Service Sector Grows in December

U.S. services expanded in December at the fastest pace in five months, capping a record year for the biggest part of the economy, a private survey showed Wednesday.

The Institute for Supply Management’s index of non-manufacturing companies including retailers, banks and airlines rose to 63.1 from 61.3. The increase was the third straight, and the average of 62.5 for 2004 is the highest since the survey began in 1997. Readings higher than 50 mean growth.

Orders accelerated and more companies said they were adding to inventories, according to the survey of purchasing executives. A post-Christmas surge in sales suggests that consumers have the incomes and confidence to keep driving economic growth, economists said.

Services account for more than two-thirds of the $11.8-trillion U.S. economy, and manufacturing accounts for less than 13%. The institute’s factory index, released two days ago, found stronger growth last month. The group is based in Tempe, Ariz.

“Like their manufacturing counterparts, non-manufacturers ended 2004 on a strong note and are optimistic heading into 2005, though cost pressures continue to be the dominant concern,” said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Conn.

The gauge of prices that companies paid for materials and services rose to 71.4 from 71. Federal Reserve policymakers said interest rates were still too low “to keep inflation stable” and rising prices might become a risk to growth, according to minutes of their Dec. 14 meeting.

The measure of new orders increased to 60.3 from 59.9. The employment index slipped to 54.9 from 55.

The index of order backlogs increased to 56.5 from 54. The inventory index rose to 56 from 52.5. The general index and indexes for orders, prices and employment are adjusted for seasonal variations.