Strong U.S. services sector data buoys economic outlook

Wed May 4, 2016 1:48pm EDT
 
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By Lucia Mutikani

WASHINGTON (Reuters) - The U.S. services sector expanded in April as new orders and employment accelerated, bolstering views that economic growth would rebound after almost stalling in the first quarter.

The growth outlook was, however, dimmed by another report on Wednesday showing private employers hired the fewest number of workers in three years in April.

Economists say strong services industry activity together with a rebound in automobile sales in April reported on Tuesday, underscore the economy's firm fundamentals that could keep the Federal Reserve on track to raise interest rates twice this year.

"The earliest indications point to a solid growth rebound of the U.S. economy in the second quarter. If Friday's payrolls report corroborates that trend, a June rate hike certainly remains an option," said Harm Bandholz, chief economist at UniCredit Research in New York.

The Institute for Supply Management said its nonmanufacturing index rose 1.2 percentage points to a reading of 55.7 in April, with the majority of industries expressing optimism about the business climate and the economy.

A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of the U.S. economy. Services industry activity was last month buoyed by a 3.2 percentage point surge in new orders.

A gauge of services sector employment rose to 53.0 last month from a reading of 50.3 in March. Construction firms reported "severe" shortages of unskilled labor.

Companies in the energy sector said recent oil price increases had slightly improved the outlook for the industry, but the gains had not been enough to initiate hiring or spending.   Continued...

 
David Wallace (L) of Lockheed Martin interviews an applicant at a job fair for veterans and their spouses held by the U.S. Chamber of Commerce and the Washington Nationals baseball club at Nationals Park in Washington December 5, 2012. REUTERS/Gary Cameron