The U.S. service sector expanded at a faster rate in January than in the previous month, a trade group said Monday, signaling a strong start to economic growth this year.
The Institute for Supply Management, which is based in Tempe, Ariz., said its index of business activity in the service sector advanced to 59.0 in January from 56.7 in December. Wall Street analysts had expected a reading of 57 for the latest month.
A reading above 50 indicates expansion, while one below that indicates contraction.
January marked the 46th consecutive month of business activity increase, the trade group said.
The service industries covered by the ISM report represent about 80 percent of the nation’s economic activity, and economists are looking for the sector to be a driver of growth in 2007 as the manufacturing sector struggles with weakness in the automotive and housing industries.
Bonds rose slightly, with the yield on the benchmark 10-year Treasury note down to 4.80 percent from 4.82 percent late Friday.
Mark Vitner, senior economist with Wachovia Securities in Charlotte, N.C., noted that the trade group’s most recent report on the manufacturing sector indicated that it was contracting in January while non-manufacturing continued to show growth.
“Manufacturing is weakening as domestic auto manufacturers cut back and as residential construction declines,” he said. “The growth is in non-manufacturing.”
He added: “The message to take away from the two is that economic growth will slow, but there will be growth.”
Anthony Nieves, chairman of the group’s non-manufacturing business survey committee, noted that new orders and employment increased at slower rates in January than the previous month and that the price index also eased.
Still, he added, “The overall indication in January is continued economic growth in the non-manufacturing sector at a faster pace than in December.”
The new orders index weakened slightly to 55.4 in January from 55.6 in December, while the backlog of orders strengthened to 49.0 from 48.0 the previous month.
Prices increased at a slower rate, with the prices index registering 55.2 in January, down from 59.7 in December.
Some of the respondents told the trade group that “costs are starting to come down — especially petroleum-related costs,” the study said.
The services employment index, meanwhile, moved down to 51.7 in January from 53.2 in December.
Seven industries reported growth: utilities; transportation and warehousing; professional, scientific and technical services; information; finance and insurance; health care and social assistance; and miscellaneous services.
Seven reported decreased activity: arts, entertainment and recreation; accommodation and food services; management of companies and support services; educational services; public administration; retail trade; and construction.
The others were unchanged.
The ISM trade association representing approximately 40,000 supply management professionals.