Washington, Feb. 5 (Bloomberg) -- Services, the largest part of the U.S. economy, expanded for a 12th straight month, an industry report showed. For the first time in two years, more service companies hired workers than fired them. The Institute for Supply Management's index for non- manufacturing businesses rose to 54.5 from 54.2 in December, while the survey's employment index rose to 50.3 from 46.9. Readings above 50 indicate expansion. Business services, which includes industries such as advertising and temporary help, was the fastest growing part of the index. The growth in services, which account for 85 percent of the economy, bolsters forecasts that the economy will grow faster this year after the slowest growth in more than a year in the fourth quarter. Manufacturing expanded for a third straight month in January, the institute said earlier this week. ``You have all cyclical sectors coming together to suggest we are heading for a stronger economy,'' said Russell Sheldon, a senior economist at BMO Nesbitt Burns in Toronto who correctly forecast a 54.5 reading. ``We are going to get a good quarter'' of growth, with the economy expanding at an annual rate as high as 3 percent to 4 percent, he said. Economic growth may accelerate to a 2.7 percent annual rate this quarter from 0.7 percent in the final three months of last year, according to the latest consensus forecast in the Blue Chip Economic Indicators survey of business economists. Fourth-quarter growth was the slowest in five quarters.
Service Index
Economists had expected the service index to fall to 54, based on the median of 47 forecasts in a Bloomberg News survey. ``This is the type of development that explains why the economy so far has avoided a double dip'' into the recession that began in March 2001, said William Sullivan, senior economist at Morgan Stanley. ``The report clearly indicates continued strength.'' While the private economists group that serves as arbiter of business cycles has never called an official end to the recession, many analysts estimate it ended in late 2001. The Institute for Supply Management, based in Tempe, Arizona, compiles its index from a survey of more than 370 companies. Since it started in July 1997, the index has risen as high as 63.2 in October 1997 and has fallen as low as 41.1 in October 2001. Readings below 50 have occurred seven times. The institute's new orders index for non-manufacturing companies rose to 56.2 last month from 54.6 in December. Order backlogs declined to 48 from 51.5. Prices paid, a measure of costs for purchased materials and services, increased to 57 from 55.3. The inventory index climbed to 46.5 from 45.5, while the index of export orders dropped to 53 from 54 and import orders surged to 56.5 from 51.8.
Employment Expands
Four of the report's 10 indexes -- business activity, new orders, employment and imports -- are adjusted for seasonal patterns. The others are unadjusted. The survey's employment index exceeded 50, showing expansion, for the first time since February 2001. Wholesale trade and communications were among the industries that reported some job growth, the survey said. Utilities, government, transportation companies and retailers cut jobs. The ISM jobs index ``indicates at least to some extent we may be seeing the end of the tunnel,'' said Ralph Kauffman, chairman of the institute's Non-Manufacturing Survey Committee. Still, ``it's too early to declare victory in the employment area.'' The Labor Department may say tomorrow that 7,000 fewer people sought initial claims for state jobless benefits last week, another sign that firings may have abated. The U.S. unemployment rate is forecast to hold steady at 6 percent for January, an eight- year high, when that report is released Friday. The economy has lost about 1.8 million jobs since March 2001, the starting point of a recession that probably ended later that same year.
Companies Hire
In what employment recruiters said was a sign that executives expect corporate spending to pick up Microsoft Corp., the world's largest software maker; computer maker International Business Machines Corp.; and Sybase Inc., a maker of database programs, announced hiring plans in the past two weeks. A majority of U.S. nonprofit organizations plan to increase staff this year, according to a survey by Kintera Inc., a provider of online software and services to nonprofits. After stocks fell for the day on renewed speculation that a possible U.S. attack on Iraq may be delayed, taking longer to resolve some of the concerns that have hampered business spending. U.S. Secretary of State Colin Powell made his case to the United Nations for using force against Iraq. The Standard & Poor's 500 Stock Index fell 4.6 points, or 0.5 percent, and the Dow Jones Industrial Average dropped 28 points, or 0.4 percent, at 4:30 p.m. New York time. Separately, as the federal government moves into a period of wider deficits, the U.S. said it will sell a record $42 billion in Treasury notes next week, bring back three-year notes in May and auction more five-year securities. Treasuries fell after the announcement, with the 10-year note maturing in November 2012 declining about 5/8 point, pushing its yield up 8 basis points to 4.00 percent. //www.quote.bloomberg.com