Service industry gauge sets record

Survey of CEOs finds their confidence rising to a 20-year high

April 06, 2004|By BLOOMBERG NEWS

NEW YORK -- A gauge of U.S. service industries unexpectedly jumped to a record last month as orders and employment climbed, and a survey of chief executive officers found their confidence in the economy is the highest in more than 20 years.

The Institute for Supply Management's index of financial services, construction, retail and other nonmanufacturing enterprises rose to 65.8 last month from 60.8 the month before, exceeding the previous record of 65.7 in January. Readings higher than 50 indicate expansion.

The measure of services industries builds on Friday's government estimate that the economy added 308,000 jobs last month, all of them in nonmanufacturing businesses. The reports raised expectations that the Federal Reserve might raise interest rates this year, and some economists were considering whether to boost their second-quarter growth projections.

"This is a very strong report. It's confirmation of the big rise in payrolls ... and it's a sign that consumers are spending," said Chris Low, chief economist at FTN Financial in New York.

The report sent stocks higher. The Dow Jones industrial average jumped 87 points to close at 10,558, and the Nasdaq composite index climbed 21 points to 2,079.

In a second report, chief executives might be gaining optimism and showing that in their hiring plans, a quarterly survey found. The New York-based Conference Board's index of business confidence rose to 73 in the first quarter from 66 in last year's final three months. The reading was the highest since the 74 posted in the last quarter of 1983. Half of the more than 100 CEOs surveyed said they expect to hire this year.

Economists had expected the Tempe, Ariz., supply management institute's index to rise to between 57 and 65.3.

In yesterday's report, 15 of 17 industries reported increases in activity, led by wholesalers, mining, communications, retail and construction.

"The vigor of the economic recovery extends beyond the manufacturing sector," said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Conn. "The stage has been set for a re-acceleration" in the second quarter to an annual growth rate of about 5.5 percent from about 4 percent at an annual pace from January through March, he said.

The purchasing managers' report by the Institute of Supply Management showed its index of prices paid, a measure of costs for purchased materials and services, surged to 65.7 from 57.3 February. The 8.4-point jump was the biggest since the index began in August 1997. Sixteen of 17 industry groups reported increased costs.

"The prices-paid component may start to ring some inflation alarm bells, which is a theme that's going to gather momentum as we go along this year," Low said.

Services account for about 85 percent of the U.S. economy, the world's largest at $11.3 trillion last year, and almost the same percentage of the nation's 130.5 million jobs.

The survey's employment index rose to 53.9 from 52.7, the sixth straight month of growth. The group's March manufacturing survey, released Thursday, showed the highest employment index since December 1987.

The index of new orders for nonmanufacturing companies climbed to 62.8 from 60.3 in February. Order backlogs eased to 52.5 from 53. The inventory index increased to 51.5 last month from 49 in February.

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