Service sector picks up speed

Growth in the service sector accelerated unexpectedly in November and third-quarter labor costs grew more slowly than forecast, suggesting that the economy may be weathering a manufacturing slowdown with wage-driven inflation coming under control.

Tuesday’s data from the Institute for Supply Management showing a stronger service sector, which makes up the bulk of the U.S. economy, could reduce chances the Federal Reserve will cut interest rates in coming months to boost the economy.

Other government data showed that U.S. worker productivity rose 0.2% in the third quarter but labor costs grew less than initially thought, a sign of subdued inflation. Wages and benefits per unit of output increased at an annual rate of 2.3% in the third quarter, slower than the previously estimated 3.8% jump.

The Institute for Supply Management’s service index rose to 58.9 in November from 57.1 in October. The median forecast of economists was for a drop to 56.

The data contrasted sharply with the institute’s report on factory activity last week, which showed that the manufacturing sector contracted in November for the first time in 3 1/2 years.

Some analysts said the slower pace of growth in labor costs would take the pressure off the Fed, which has repeatedly signaled that it could resume raising interest rates if inflation showed signs of accelerating.