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Service Industry Index in U.S. Rises More Than Expected to 65.7 From 58.0Feb. 4 (Bloomberg) -- An index of U.S. service industries rose to a record in January and factory orders in December increased for the third time in four months, suggesting the economy is strengthening from the fourth quarter. The Institute for Supply Management's index for non- manufacturing businesses jumped to 65.7, the highest since the survey's inception in July 1997 and exceeding forecasts, from 58 in December. Since April, the gauge has held above 50, signaling expansion. Orders placed with manufacturers in December rose 1.1 percent, the Commerce Department reported. Increased manufacturing may bring even greater demand for services from companies including United Parcel Service Inc., suggesting growth is quickening from the fourth quarter's 4 percent pace, economists said. Shippers, retailers, builders and other services account for 85 percent of the economy. ``There is good momentum that is covering a wider range of industries,'' said Peter Kretzmer, a senior economist at Banc of America Securities LLC in New York. ``The reports continue to show solid growth. Capital spending is continuing to grow and broadening to other areas. We are looking for consumer spending to be a little stronger'' this quarter. Economists expected the institute's index to rise to 60, from 58.6, the median of 53 estimates in a Bloomberg News survey. Estimates ranged from 56.5 to 64.5. A 0.2 percent rise was forecast for December factory orders, according to a separate Bloomberg survey. `Outstanding January' ``Bloomingdale's had a terrific fourth quarter, topped off by an outstanding January,'' Terry Lundgren, chief executive officer of Federated Department Stores Inc., said yesterday. Federated owns Bloomingdale's and Macy's. ``We are a pretty good and pretty fast read on how the consumer is feeling right now.'' The purchasing managers group reported Monday that its gauge of factory activity was the highest since 1983. The purchasers' index of manufacturing rose to 63.6, reflecting a jump in production. It is ``reassuring to see both ISM readings for January point to a torrid pace of activity,'' said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. ``I believe that growth will pick up to at least 5 percent in the first quarter.'' The Treasury's benchmark 4 1/4 percent note maturing in November 2013 fell 11/32 point, pushing up the yield 4 basis points to 4.14 percent at 10:41 a.m. New York time after the government announced plans to sell $56 billion of notes next week. A basis point is 0.01 percentage point. Capital Equipment The Commerce Department's factory orders report today showed a 0.3 percent rise in bookings for durable goods, reflecting greater demand for business equipment. Non-defense capital goods orders, a proxy for business investment, rose 0.8 percent in December. Orders rose 2 percent for non-durable goods, which may have been due to an increase in the value of petroleum. Factory stockpiles relative to sales fell to a record low of 1.26 months, suggesting production will strengthen in coming months. ``With order books firming, the need to get the products out the door quicker is building,'' said Joel Naroff, president of Naroff Economic Advisers in Holland, Pennsylvania. The index of new orders for non-manufacturing companies rose to 64.9, the second highest on record, from 59.5 in December. Order backlogs eased to 53.5 from 55.5. The index of prices paid, a measure of costs for purchased materials and services, fell to 59.7 from 60.3 in December. The inventory index dropped to 49.5 last month from 51.5. The employment index slipped to 53.4 from 54 in December. First-Quarter Forecast In Europe, services expanded for a seventh straight month in January. An index based on a survey of 2,000 purchasing managers compiled for Reuters Group Plc by NTC Research Ltd. rose to 57.3 from December's 56.6, according to information available on the Internet. The U.S. economy is forecast to grow at a 4.4 percent annual rate this quarter, according to the latest Blue Chip Economic Indicators survey of economists. Tax cuts, low interest rates and cash from mortgage refinancing helped gross domestic product surge at an 8.2 percent pace in the third quarter. Faster growth may be needed to create more jobs. President George W. Bush's economic advisers forecast this week that the economy will expand 4.4 percent this year, the most since 1999, helping to drive down unemployment. Employment gains in services since the expansion began in November 2001 have not been enough to compensate for the loss of 1.47 million manufacturing positions in that time. In the past six months, however, service-producing companies added 340,000 workers while manufacturers have eliminated 188,000. Employment A report Friday from the Labor Department is forecast to show employment increased 175,000 in January, the most since November 2000. The unemployment rate may have held at 5.7 percent, according to the median forecast in a Bloomberg survey. ``Jobs are the main thing now,'' said Federated's Lundgren. ``This has been somewhat of a jobless recovery. I do believe that as long as consumers are worried about their own personal job security, it will be difficult to see a widespread recovery. That's the No. 1 issue.'' United Parcel, the world's largest package-delivery company, said last week that fourth-quarter earnings rose 15 percent as it handled more holiday packages. The Atlanta-based company said it moved 20 million packages on Dec. 23, the most in a single day. The rise in shipments underscores the recovery in manufacturing, Chief Financial Officer Scott Davis told Bloomberg News in a televised interview. ``It's something we've been looking for the last two or three years,'' Davis said. Rising stock prices are boosting earnings at mutual funds companies. The Dow Jones Industrial Average rose 25 percent last year, the first gain in four years and the largest since 1997. Denver-based Janus Capital Group Inc. said today its fourth- quarter earnings jumped 23 percent To contact the reporter on this story: Courtney Schlisserman in Washington, or cschlisserma@bloomberg.net. To contact the editor on this story: Kevin Miller in Washington, or kmiller@bloomberg.net Last Updated: February 4, 2004 11:09 EST Back to Original Article: Mortgage News You Can Use
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