WASHINGTON (AP) — Strong consumer demand pushed a key measure of the economy's service sector to its highest level in more than four years, the latest evidence that the economy is gaining strength and job growth could pick up in the new year.
The Institute for Supply Management, a trade group of purchasing executives, said Wednesday that its index of service sector activity rose to 57.1 in December. Any reading above 50 indicates growth.
Last month's reading was the highest since May 2006 and marked the 12th straight month of expansion for the sector, which employs 80 percent of the work force. The index plummeted to 37.2 in November 2008, at the height of the financial crisis. The sector contracted for all but two months in 2009, then began expanding last year.
A major reason for the gains is that people are spending more money. Companies covered by the survey — everything from health care to retail to financial services — received the highest number of orders for business in five years. That, along with a solid year of expansion, suggests the broadly defined sector could be an engine of job growth in 2011.
Economists say increased demand for services could set off a virtuous cycle: Rising employment gives consumers the confidence — and cash — to spend more, and that prompts businesses to increase hiring.
Earlier Wednesday, payroll services provider ADP said the economy added 297,000 private-sector jobs last month, the biggest increase since the company began tracking employment 10 years ago. The government is scheduled to issue the December employment report Friday.
"The spending side of the economy has turned a corner — a necessary step toward promoting the employment growth that will put the economy into a clearly self-sustaining expansion," Pierre Ellis, an economist at Decision Economics, wrote in a note to clients.
Still, the outlook for job growth is murky. The ADP report noted that 270,000 of the jobs added in December were in service industries. The ISM report was more conservative in estimating last month's job growth. While it doesn't give an actual number of jobs added, its employment index dipped to a level that showed slower growth. Paul Ashworth, an economist at Capital Economics, said ISM's reading is consistent with about 100,000 service sector jobs.
