Service and Manufacturing Sectors Gain

EconomyThe economy is picking up a bit from its late summer doldrums, according to two reports Wednesday, with both the service and manufacturing sectors showing better health. Yet the gains aren’t likely to be enough to reduce high unemployment anytime soon.

The service sector, which employs about 80 percent of Americans, grew faster in October than in the previous month, a trade group said. It also posted its 10th straight month of expansion.

A separate report Wednesday showed that orders to U.S. factories rose broadly in September. Business spending on big-ticket goods such as airplanes and heavy machines produced most of the demand for factory orders, the Commerce Department said. But consumer spending also rose 1 percent, after running flat in August.

Economists have worried that consumers won’t spend enough to keep factories moving as business spending subsides. Wednesday’s factory report might ease those fears.

“The economy is picking up steam here,” said John Silvia, chief economist at Wells Fargo. “It’s not going to be a boom, but it’s not as pessimistic as many people were expecting.”

The Institute for Supply Management, a trade group of purchasing executives, said its service sector index rose to 54.3 in October, up from 53.2 in September. A figure above 50 indicates that the sector is expanding.

The index reached 55.4 in the spring, its peak after the recession ended in June 2009, before falling to 51.4 in August. It plummeted to 37.2 in November 2008, its low point during the recession. The index covers retailers, health care, financial services, hotels and restaurants, among other sectors.

Economists said October’s figure is consistent with modest economic growth of about 2.5 percent. That’s an improvement from the 2 percent annual rate the government reported last month for the July-September quarter. But it’s far from the 5 percent growth needed to quickly reduce unemployment.

The jobless rate is now 9.6 percent. Economists forecast that it will rise to 9.7 percent when the October unemployment report is released Friday.

The employment index in the ISM’s service-sector report rose for the second straight month, indicating services companies likely added jobs last month.

In another positive report, the payroll company ADP said private-sector employers added 43,000 jobs in October, after cutting employment in September.

The job market appears “to be perking up a little,” Brian Bethune, an economist at IHS Global Insight, said in a note to clients. But “we are still a long way from the kind of employment growth that would start to drive down the unemployment rate.”

Silvia said Tuesday’s elections, in which Republicans gained a majority in the House, might resolve the uncertainty over taxes and regulatory policy that some corporate executives say is causing them to hold back on hiring, even as profits rise.

Assuming Congress extends the 2001 and 2003 tax cuts, which are set to expire at year’s end, “that will take a lot of uncertainty off the table,” he said.

Some small business owners who are taxed at personal income tax rates were facing a potential tax hike next year, he said.

The election results, combined with Wednesday’s reports showing economic improvement, could cause companies to add a net total of 100,000 jobs in November, Silvia said. That pace could continue for the next six months, he added.

That’s an improvement from several months of weak growth. Yet it’s still below the roughly 200,000 new jobs needed each month to keep up with population growth and help get nearly 15 million unemployed people back to work.

On Friday, economists expect the government will report that employers added a net total of only 60,000 jobs in October.

Source: The Associated Press.