US service firms grew in September at fastest pace since March, as new orders rise

WASHINGTON – U.S. service companies, which employ nearly 90 per cent of the work force, grew in September at the fastest pace since March. The growth was driven by sharp increases in current and future sales.

The Institute for Supply Management said Wednesday that its index of non-manufacturing activity rose to 55.1, up from 53.7 in August. Any reading above 50 indicates expansion.

The report measures growth in a broad range of businesses from retail and construction companies to health care and financial services firms. The service sector has grown for 33 straight months, based on the ISM survey.

The September survey points to a rise in consumer demand, which could help lift economic growth from its tepid pace and ultimately lead to more hiring.

A measure of current sales activity jumped to 59.9, up from 55.6 in August. And a gauge of new orders rose to 57.7, up from 53.7 in August.

Stronger growth at service firms coincided with an increase in U.S. factory activity in September. A separate ISM survey released Monday showed manufacturing grew last month for the first time in four months, also driven by a sharp jump in new orders.

The economy grew at a 1.3 per cent annual rate in the April-June quarter. Consumer spending drives nearly 70 per cent of economic activity.

Service companies kept adding jobs in September, although at a slower pace. A measure of hiring fell to 51.1, down from 53.8 in August.

The service sector has been a key source of job growth this year. Service firms have created an average of 133,000 jobs per month, or 95 per cent of the net jobs added since January.

Still, total job growth has been too weak to significantly lower the unemployment rate, which was 8.1 per cent in August. And many of the new service jobs have been low-paying retail and restaurant positions.

The government will release the September employment report on Friday. Economists expect it will show the economy added 111,000 jobs in September, up from 96,000 in August. The unemployment rate is expected to tick up to 8.2 per cent.

Job growth will feature prominently in Wednesday night’s debate between President Barack Obama and Republican challenger Mitt Romney in Denver, the first of three in this year’s election. The economy is the top issue on most voters’ minds with just five weeks left before Election Day.

Obama is expected to highlight the 5.1 million jobs created by private employers since February 2010. Romney will likely focus on the unemployment rate, which has been above 8 per cent for the past three and a half years.

High unemployment and weak wage growth have kept Americans from spending more freely, which has held back growth.