U.S. service industries expand

factory orders increase again

Economy signals a gain in employment

November 06, 2003|By BLOOMBERG NEWS

WASHINGTON - U.S. service industries expanded at a faster rate last month, and September factory orders rose for a fourth time in five months amid signs that the economy is adding jobs at a quicker pace.

The Institute for Supply Management's index of nonfactory businesses climbed to 64.7, the second-highest level on record, from 63.3 in September. Readings higher than 50 indicate growth. Orders at U.S. factories rose 0.5 percent in September, the Commerce Department said.

A gauge of employment in the service index rose to the highest level since November 2000, prompting economists at UBS Securities LLC to more than double their estimate for October's employment report, to a gain of 125,000 jobs. Treasury Secretary John W. Snow said last month that he would stake his reputation on job growth by Christmas and noted private forecasts that job gains might eventually reach 200,000 a month.

"The really good news is employment, up to a 35-month high," said Ian Shepherdson, chief U.S. economist for High Frequency Economics Ltd. "If maintained, this is consistent with nonfarm payrolls rising by about - wait for it - 200,000 per month. We certainly don't expect such big gains immediately, but this is a seriously big shift in the right direction."

The median projection in a Bloomberg News survey of 67 economists is that tomorrow's Labor Department report will show a gain of 65,000 jobs. Unemployment might have held at 6.1 percent for a third straight month, the survey found.

Deutsche Bank Securities Inc., whose estimate of 125,000 jobs for October had been the highest in the Bloomberg survey, might raise its prediction, senior U.S. economist Joseph LaVorgna said in a report.

The services and factory-order reports "tell us that even though we have some indications that demand is slowing in the current quarter, production is still accelerating because producers were caught off guard by the strength of the third quarter," said Christopher Low, chief economist at FTN Financial. "The fact that new orders are rising suggests the slowdown in demand won't last long."

Eonomists had forecast that the Tempe, Ariz., institute's nonmanufacturing index would hold at 63.3 last month, based on the median of 56 estimates in a Bloomberg survey of economists. The services index is based on a survey of more than 370 nonmanufacturing companies.

The employment index rose to 52.9 last month from 49.1 in September. New orders for nonmanufacturing companies rose to 64.4 from 59.9. Order backlogs eased to 54 from 57. The group's index of prices paid, a measure of costs for purchased materials and services, fell to 58.7 from 60.1 in September. The inventory index rose to 49 last month from 47.5 the month before.

The economy expanded at a 7.2 percent annual rate from July through September, the fastest in nearly 20 years, and growth may reach 4 percent this quarter, economists said.

Consumer spending grew at a 6.6 percent pace in the third quarter, the fastest in six years, and consumer confidence jumped in October amid evidence the job market is improving.

Companies such as Verizon Communications Inc., the largest U.S. local-telephone company, and Best Buy Co., the biggest U.S. electronics retailer, have said they may boost hiring. Best Buy said yesterday that it will increase the number of employees in its 580 stores by an average of 32 percent this holiday season.

September's 0.5 percent rise in factory orders brought the level to $331.1 billion, the Commerce Department said. August orders fell a revised 0.3 percent, less than half the decline estimated last month. Excluding transportation equipment, orders rose 0.6 percent in September.

The manufacturing inventory-to-sales ratio fell to a record- low 1.30 months in September. Factory inventories dropped 0.4 percent after declining 0.3 percent in August.

Economists had expected factory orders to rise 0.6 percent.

Durable-goods orders, which account for more than half the report, rose 1.1 percent in September, revised from the 0.8 percent gain the government reported last week.

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