---- by Christopher Anstey ----
WASHINGTON (AFX) - Data showing an expanding service sector in November and declining numbers of layoffs show hints of a recovery for the US economy, and support hopes for return to growth in the second quarter of next year, economists said. The data "are supportive of our view of a recovery beginning sometime in Q1 and manifesting itself in positive GDP growth in Q2," said Lehman Brothers economists in a research note. The National Association of Purchasing Management index of non-manufacturing activity rose last month to 51.3 from 40.6 in October, stronger than expected. The index, which covers the service sector, is now at a five-month high. Separately, the Challenger, Gray & Christmas survey of layoffs was reported at 181,000 in November, down from 242,000 the previous month. The stock market responded positively to the data, while bond yields rose on rising expectations of a recovery. Analysts said the figures show that while the economy may be in recession, it is also showing some resilience, with the rate of decline beginning to moderate. "The decline (in the economy) is getting smaller, that's how I read it," said Brian Fabbri, chief economist at BNP Paribas. Although the NAPM non-manufacturing index rose above the expansion/contraction point of 50, Fabbri said "it's hard to say (the service sector) is expanding." The non-manufacturing index has little history, only dating back a few years, analysts noted, and the survey should be viewed cautiously. "We don't have a lot of experience with it," said James Glassman, senior economist at Chase Securities; "it's pretty weak evidence." The markets' reaction to the figures is more a function of strong expectations for an eventual recovery, on the back of large fiscal and monetary stimulus actions already taken or under way, Glassman said. "What's going on is investors know that the (Federal Reserve), Congress, and administration have put in place some pretty powerful stimulus," leaving them with expectations of a recovery. In this state of mind, small positive figures such as the NAPM non-manufacturing report can generate a sharply positive response from the market, he explained. The data released this morning show "the consumer has not been sidelined; there is a pretty resilient consumer sector," which, considering the shocks of Sept 11, "is not bad," Glassman said. Analysts also said the Federal Reserve is still likely to ease at the Federal Open Market Committee next week, providing further monetary stimulus to the economy. "The rebound is fragile at best. The composition of the (NAPM non-manufacturing) report will not offer much comfort for the Fed. Nor should US corporations take much heart," said UBS Warburg economists. The data "may be showing that we have gone through the trough," Fabbri concluded, but it will take time before economic reports show a true expansion in activity.