Service Sector Picks Up

The nation’s service sector grew more rapidly in December and the number of workers filing new claims for unemployment benefits fell to the lowest level in five years, signs that the economy entered the new year on fairly strong footing.

The Institute for Supply Management said Thursday that its index of non-manufacturing activity increased to 59.8 last month from 58.5 in November. The new figure was above the 59 reading forecast by analysts.

Also Thursday, the government reported that initial claims for unemployment benefits fell by 35,000 last week to 291,000, the lowest level in more than five years and a sign that the national labor market continues to shake off the effects of hurricanes Katrina, Rita and Wilma.

Economists cautioned against making too much of the one-week unemployment claims figure, noting that it could be exaggerating improvements in the labor market during a holiday period when layoffs are difficult to measure.

The week measured by the figure will not be included in the December payrolls figure scheduled for release this morning.

But Ian Shephardson, chief economist at High Frequency Economics in Valhalla, N.Y., said he expected the jobs picture to continue improving in coming weeks because retailers, who were relatively modest in their pre-holiday hiring, are likely to engage in fewer layoffs.

The two new reports provide more evidence that the hurricanes took only a limited and temporary toll on the national economy, even as they caused tremendous damage to the business climate along the Gulf Coast, said Jason Schenker, an economist at Wachovia Corp.

The service sector’s growth in December marked the 33rd straight month of its expansion.

A reading of 50 and above points to a growing service sector, while a figure below that signals contraction.

The index, which has averaged 60.1 during the last year, fell as low as 53.3 in September when businesses were struggling to deal with sharply higher energy prices after Hurricane Katrina.