April 5 (Bloomberg) -- Service industries expanded in March at the fastest pace since in more than three years, a sign the U.S. recovery is extending beyond manufacturing and starting to create jobs.
The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 55.4, the highest level since May 2006, from 53 in the prior month. Today’s figure exceeded all forecasts in a Bloomberg News survey. Readings above 50 signal expansion. Pending home sales in February posted the biggest gain since 2001, another report showed today.
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.
“You’re seeing a broadening of the recovery from manufacturing into services,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “Given these two areas of the economy -- the services sector and home sales -- have been lagging, it’s comforting to see they’re making progress.”
Pending Home Sales
More Americans signed contracts in February to buy previously owned homes, according to the National Association of Realtors. The index of purchase agreements, or pending home sales, rose 8.2 percent, the second-biggest gain on record and the largest since October 2001.
A measure of U.S. job prospects rose in March for a seventh consecutive month, signaling the labor market is likely to add more workers, a private report showed. The Conference Board’s Employment Trends Index increased 0.7 percent to 94.4 from 93.7 the previous month, the New York-based private research group said today. The measure is up 5.5 percent from a year ago.
Stocks extended gains and Treasury securities fell after the reports. The Standard & Poor’s 500 Index rose 0.8 percent to 1,187.04 at 10:51 a.m. in New York. The 10-year Treasury note declined, pushing up the yield to 3.99 percent from 3.95 percent on April 2.
Estimates before the Tempe, Arizona-based group’s gauge ranged from 51 to 55, according to the Bloomberg survey of 68 economists.
Factory Rebound
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 in March, the highest level since June 2007, from 47, while the index of prices paid rose to 62.9 from 60.4.
Categories in the ISM services survey include utilities, health care, housing, transportation and finance and insurance.
The unemployment rate was 9.7 percent in March for a third month, the Labor Department reported April 2. Payrolls rose for the third time in the past 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.
Consumer Demand
Retailers experiencing a pickup in demand include Best Buy, the largest U.S. electronics retailer. The Richfield, Minnesota- 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.”
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