WASHINGTON (AP) — U.S. service companies, which employ roughly 9 in 10 Americans, probably expanded at a slightly faster pace last month as the job market improved and economic growth picked up.
Economists expect the Institute for Supply Management's non-manufacturing index rose to 53.2 in January from 52.6 in December, according to a survey by FactSet. Any reading above 50 indicates expansion.
The report will be released at 10 a.m. Eastern time on Friday.
The ISM, a trade group of purchasing managers, surveys a range of businesses outside the manufacturing sector. They include retailers, restaurants, hotels, financial service firms and construction companies.
The service sector has grown for two straight years. And key components of the index appeared resilient in recent months. An index for new orders rose for the third month in December. A separate benchmark of business activity barely decreased after leaping the previous month.
Economists say several factors probably lifted service-sector growth in January: Strong new orders results the previous month, fewer layoffs and strong results from other service-industry surveys, such as one released last week by the Federal Reserve Bank of Richmond.
The economy grew in the final three months of 2011 at a 2.8 percent annual rate. That was faster than the 1.8 percent pace in the July-September quarter.
Much of the growth came from companies restocking their inventories, a process that is likely to slow in the current quarter. That trend tends to boost manufacturers, and can have less direct effect on service companies.
Manufacturing grew in January at the fastest pace in seven months, the ISM said on Wednesday. New orders to factories grew, and builders spent more on construction for a fifth straight month.
Economists with BMO Capital Markets say the service industry probably improved more modestly because it did not benefit from strong demand from overseas for U.S. exports.
The job market has strengthened, as well. Applications for unemployment benefits have been declining since the fall as faster growth allowed employers have cut fewer jobs. The four-week average of new unemployment claims has fallen 7 percent since last October and 13 percent in the past year.
Hiring by service companies has been in a holding pattern. The employment component of the ISM index fell in December to 49.8, suggesting a slight decrease in hiring. It was only the second time that figure fell below 50 since August 2010.
Still, the main ISM service index slowed in September to 52.6, the lowest rate of growth since February 2010. It remained at that level for three months, before rising modestly in December.
The retail sector might have dragged on the service industry last month. Consumer confidence fell unexpectedly in January as Americans worried about their incomes, rising gas prices and weakening business conditions, the Conference Board said Tuesday.
Those fears were apparent in last month's mixed retail sales figures. Stores reported uneven results on Thursday, suggesting that shoppers remain cautious about spending in the shaky economy.
Of the 12 merchants reporting monthly sales this week, the number who beat estimates and those who missed expectations was about even, according to a Thursday morning tally by Thomson Reuters.
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