Service Industries in U.S. Grow at Faster Pace Than Forecast

(Bloomberg) -- America's service industries expanded more than projected in April as a measure of orders reached the highest level since 2005, a survey from the Institute for Supply Management showed Wednesday.

Key Points

• Non-manufacturing index rose to 57.5, the second-highest since October 2015 (forecast was 55.8) from 55.2 in March; readings above 50 indicate growth
• Gauge of orders climbed to 63.2, the highest since August 2005, from 58.9
• Measure of business activity increased to 62.4 from 58.9
• Index of services employment slid to 51.4, an eight-month low, from 51.6

Big Picture

The results are in sync with projections for a rebound in economic growth this quarter coming off the weakest pace in three years, which was partly due to transitory restraints. The ISM's manufacturing index, released earlier this week, eased in April while remaining consistent with sustained expansion.

The surge in non-factory orders also extended to customers beyond U.S. borders as a gauge of export demand climbed to the highest level in nearly a decade. Recent data from the euro area showed manufacturing growing the most in six years, a development that can benefit U.S. service providers.

Steady job growth, healthier household finances and rising confidence help explain the pickup in services, which account for about 90 percent of the economy and span industries such as utilities, retailing, health care, and construction.

At the same time, the drop in the employment gauge could potentially translate into a disappointing gain in service providers' payrolls, with Labor Department figures due Friday.

Other Details

• The index of export orders advanced to 65.5, the highest since May 2007, from the prior month's 62.5
• The gauge of backlogs improved to 53.5 from 53 • The prices-paid index rose to 57.6 from 53.5
• Sixteen non-manufacturing industries reported growth in April, including wholesale trade, entertainment, mining, retail and construction
• Labor was listed as in short supply for a third month; construction labor for a 13th straight month

--With assistance from Kristy Scheuble

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net.

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle