Factory demand surges, services sector expands

By Daniel Wagner, AP Business Writer

WASHINGTON — The economy's service sector, the nation's predominant employer, grew faster in October than the previous month and posted its 10th straight month of expansion.

The Institute for Supply Management said Wednesday that its service sector index rose to 54.3, up from 53.2 in September. A figure above 50 indicates that the sector is expanding. Analysts had expected a small drop.

Still, economists said the figure is consistent with only modest economic growth. The index reached 55.4 in the spring, before falling to 51.4 in August. It fell to 37.2 in November 2008, its low during the recession.

The manufacturing sector is rebounding more quickly than the service sector, which covers about 80% of the economy. The service sector includes the health care, retail, utilities and financial services industries.

A separate report Wednesday said 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 orders, the Commerce Department said. But consumer spending also rose 1.0%, after running flat in August.

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

On Monday, the ISM said its manufacturing index rose to its highest level in five months. It added to evidence that manufacturing activity is continuing to grow.

The employment index in the ISM's service-sector report rose for a second month, indicating the service sector likely added jobs last month. But hiring is unlikely to be strong enough to reduce the unemployment rate, now at 9.6%. Economists forecast it will rise to 9.7% when the government issues the October jobs report Friday.

The ISM, a trade group of purchasing managers, said 11 areas of the service sector reported growth, including educational services, mining, financial services, and health care. Only three contracted: agriculture, arts and entertainment, and construction.

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