Expansion in service sector surprises

The growth of the U.S. service sector accelerated in October for the first time in four months, a report showed Monday, indicating that some areas of the economy had not succumbed to the housing slump and turmoil in the financial markets.

The Institute for Supply Management’s services index rose to 55.8 last month from 54.8 in September. Economists polled by Reuters had forecast a median result of 54.0 for October.

A number above 50 indicates growth in the sector, which represents about 80% of U.S. economic activity and includes businesses such as restaurants, hotels, banks and airlines.

The ISM non-manufacturing report followed surprisingly strong jobs data on Friday, which suggested that portions of the world’s largest economy remained resilient.

Thursday’s ISM manufacturing report showed the factory sector was on the verge of contraction in October.

Anthony Nieves, chairman of the ISM’s non-manufacturing business survey committee, said the sector was “holding pretty strong considering everything that’s going on in the financial services arena” and the housing sector.

“I’m not seeing a tremendous slowdown at this point in time,” Nieves said during a teleconference after the data were released.

The new orders index rose to 55.7 in October from 53.4 in September. The employment index eased to 51.8 from 52.7.

Presenting good news for investors worried about inflation, the prices paid index fell to 63.5 from 66.1 in September.

“The numbers are pretty good. It suggests the service sector is growing at a decent pace so the economy is not in too much trouble overall, at least for the moment, despite the weakness in housing,” said David Sloan, an economist at 4Cast Ltd. in New York.