Ahead of the Bell: US Services Index

US services firms likely grew at a faster pace last month as weather improves

Associated Press
US services index slips on sharp fall in orders
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FILE - In this Dec. 5, 2013 file photo a dish is prepped at the Fig & Olive restaurant, near New York's Rockefeller Center, in New York. The Institute for Supply Management issues its U.S. non-manufacturing index for December on Monday, Jan. 6, 2014. (AP Photo/Richard Drew, File)

WASHINGTON (AP) -- The Institute for Supply Management reports on growth at U.S. service firms in March. The ISM will release its services index at 10 a.m. Eastern time on Thursday.

MODEST REBOUND: Economists forecast that the index rose to 53.2 in March, according to a survey by FactSet, up from 51.6 in February. The index was 54 in January, near its average for the past 12 months. Any reading above 50 indicates growth. The ISM is a trade group of purchasing managers.

The services survey covers businesses that employ 90 percent of the workforce, including retail, construction, health care and financial services firms.

WEATHER IMPACT FADING?: The index fell to its lowest level in four years in February, which most economists blamed largely on harsh winter weather. Low temperatures and severe snowstorms likely caused some service firms, such as retailers, restaurants and construction firms, to close temporarily or suspend work.

A measure of employment plummeted nearly 9 percentage points in February, indicating that many service firms had cut their staffs. Some of those layoffs may have been weather-related and temporary. The government's March jobs report will be released Friday.

Now that the weather has improved, economists are scrutinizing March data to see if the economy is recovering from the winter's deep freeze.

Most recent evidence suggests that it is. The ISM's separate survey of manufacturers in March, released Tuesday, rose for the second straight month to 53.7, partially recovering from January's sharp 5-point fall to 51.3. Factories cranked out more goods and new orders rose, the survey found. But manufacturers added jobs at a slower pace.

Auto sales rose 6 percent in March, a big improvement after winter snow storms had lowered sales in the first two months of the year. That suggests Americans are willing to spend on big purchases, a hopeful sign for the broader economy.

And the number of Americans seeking unemployment aid fell to the lowest level in four months two weeks ago, the government said. That suggests companies are cutting fewer workers and may even be hiring more. Last week's figure will be released Thursday.

Still, service companies are growing at only a modest pace. The index has drifted downward after peaking at 57.9 in August.

Most economists expect growth slowed in the January-March quarter to a 1.5 percent to 2 percent annual rate. That would be slower than the fourth quarter's 2.6 percent pace. But growth is expected to accelerate to nearly 3 percent for the rest of the year, as hiring improves and Americans spend more.

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