Service industries in U.S. grow at fastest pace since May 2006

Bloomberg News

Service industries expanded in March more than anticipated and at the fastest pace since May 2006, a sign of a broadening U.S. recovery that’s starting to create jobs.

The Institute for Supply Management’s index of non-manufacturing businesses, which make up almost 90% of the economy, rose to 55.4 from 53 in the prior month. Today’s figure exceeded the median forecast of 54 in a Bloomberg News survey of economists. Readings above 50 signal expansion.

The manufacturing rebound that helped the world’s largest economy dig out of the worst recession since the 1930s is starting to extend to other industries, benefiting companies such as Carnival Corp. and Best Buy Inc. A government report last week showed employment rose 162,000 in March, the most in three years, making a sustained recovery more likely.

“The service sector is rebounding, and we may see an improvement in the pace in coming months,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “Employment growth will provide the fuel for consumers to continue spending.”

Estimates for the Tempe, Ariz.-based group’s gauge ranged from 51 to 55, according to the Bloomberg survey of 68 economists.

Manufacturing grew in March at the fastest pace in more than five years, the supply managers’ group reported on April 1. The factory index jumped to 59.6, the highest level since July 2004.

Today’s report showed the non-manufacturing gauge of new orders rose to 62.3, the highest since August 2005, from 55 the prior month, and the index of employment increased to 49.8 from 48.6.

The measure of new export orders jumped to 57.5 from 47, while the index of prices paid rose to 62.9 from 60.4.

Categories in the ISM services survey include utilities, healthcare, housing, transportation and finance and insurance.

The unemployment rate was 9.7% in March for a third month, the Labor Department reported April 2. Payrolls rose for the third time in the last five months and by the most since March 2007, signaling companies are becoming more confident that the economy is healing.

Service-producing companies added 82,000 workers to their payrolls in March, the third straight gain and the largest increase since November, the Labor Department’s data showed.

Retailers experiencing a pickup in demand include Best Buy, the largest U.S. electronics retailer. The Richfield, Minn.- based company last month reported fourth-quarter profit that exceeded analysts’ estimates as discounts helped to boost sales.

Carnival, the biggest cruise-line operator, last month raised its full-year profit forecast as ticket prices rebounded from 2009’s lows amid more bookings.

“The booking environment continued to improve,” Chief Executive Officer Micky Arison said in a March 23 statement. “We returned to top line revenue growth after a challenging 2009.”