WASHINGTON – U.S. service firms’ growth accelerated in April, fueled by more orders, rising sales and an uptick in hiring. The figures provide solid evidence that the economy is recovering from its first-quarter stumble.
The Institute for Supply Management said Tuesday that its services index rose to 57.8 in April from 56.5 in March. The April reading is its highest level in five months. Any reading over 50 indicates that service providers are expanding.
The healthy showing supports analysts’ forecasts that the economy’s stumble in the first three months of the year will be temporary. Hiring slowed in March and the economy may have even shrunk in the first three months of the year. But most economists expect growth will rebound in the coming months.
“The data still suggest a solid trend in overall growth as well as in employment,” Jim O’Sullivan, an economist at High Frequency Economics, said in a note to clients. “They caution against extrapolating from the weakness in GDP” in the first quarter.
A measure of hiring ticked up one-tenth of a per cent to 56.7, its third straight increase. That suggests the April jobs report, to be released Friday, will show greater job gains than in March, when hiring fell to 126,000, the slowest in 15 months.
Service providers are mostly avoiding the hurdles that have slowed growth among manufacturers and weighed on the broader economy. Factory production has fallen as the strong dollar has made American goods more expensive overseas. A sharp fall in oil prices in the past year has also caused drilling companies to spend less on rigs and equipment, which has cut into the production of steel and industrial machinery.
The ISM’s report also indicates that Americans stepped up their spending in April, after cutting back and boosting savings in the first three months of the year. A measure of sales jumped 4.1 points to 61.6, also the highest in five months.
Sluggish consumer spending contributed to a sharp slowdown in growth in the first quarter. The economy expanded at just a 0.2 per cent annual rate, down from a 3.6 per cent pace in the second half of last year.
Economists blamed much of the slowdown on harsh winter weather and other temporary factors, such as a labour dispute at West Coast ports that disrupted the shipping of parts and raw materials. But some factors, such as the strong dollar, will likely persist for much of the rest of the year.
The ISM is a trade group of purchasing managers. Its survey of services firms covers businesses that employ 90 per cent of the American workforce, including retail, construction, health care and financial services companies.