US Service Industry Growth Surges in January

U.S. service companies grew at the fastest pace in 11 months in January as companies started hiring to keep up with rising demand.

The Institute for Supply Management said Friday that its index of non-manufacturing activity jumped to 56.8 percent in January from 53 percent in December. The survey's employment index soared to its highest level since February 2006. Any reading above 50 indicates expansion.

The trade group of purchasing managers surveys businesses including restaurants, hotels, retailers, financial services firms and construction companies.

The service sector has been growing for two straight years. But hiring had stagnated, with the employment index falling below 50 in two of the past four months. Companies overcame their reluctance to hire in January, pushing the employment index up to 57.4 percent from 49.8 percent.

Nearly every component of the index suggested that business for non-manufacturing companies is picking up. Companies said business activity, new orders, exports and imports all picked up.

Inventories shrank more quickly, indicating solid sales, and deliveries from suppliers slowed down.

Economists say the service sector received a boost from strong new orders the previous month. In January, new orders grew for the fourth straight month, at the fastest pace since last March.

The economy grew in the final three months of 2011 at a 2.8 percent annual rate. That was faster than the 1.8 percent pace in the July-September quarter.  Much of the growth came from companies restocking their inventories, a process that was expected to help manufacturers and have a more modest impact on the service industry. That's one reason the ISM's January survey far outpaced economists' expectations.

Economists had expected the overall index to edge up 0.2 percent, rather than the 3.8 percent leap that the ISM reported, according to a FactSet survey.

Manufacturing grew in January at the fastest pace in seven months, the ISM said on Wednesday. New orders to factories grew, and builders spent more on construction for a fifth straight month.

Service-sector growth had edged up in December after staying flat for three straight months.

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