April 5, 2010 / 2:03 PM / 9 years ago

Services sector grows at fastest clip since '06

NEW YORK (Reuters) - The U.S. services sector grew in March at its fastest pace in nearly four years, data showed on Monday, while pending sales contracts for existing homes rose in February, suggesting steady economic improvement.

A view of a home for sale in Los Angeles February 24, 2010. REUTERS/Mario Anzuoni

The Institute for Supply Management said its service index grew in March for a third straight month, jumping to 55.4, its strongest reading since May 2006. That was up from February’s 53.0 reading and above economists’ forecasts for 54.0 for March.

A reading above 50 indicates expansion in the sector.

U.S. stock indexes rose and the dollar pared losses against the yen after the data, which bolstered hopes that the economy is recovering swiftly from a deep recession.

Separate reports last week showed the U.S. manufacturing sector grew for an eighth straight month in March, expanding at its fastest pace since July 2004, while U.S. employers added jobs last month at the fastest rate in three years.

“Looks like the good news continues,” said Alan Gayle, senior investment strategist at Ridgeworth Investments in Richmond, Virginia. “All this suggests that the economic recovery is spilling over into job creation.”

A separate report from the National Association of Realtors showed contracts for pending sales of previously owned homes unexpectedly rose in February.

Both reports “are generally supporting the idea that the recovery is moving ahead,” said Tom Porcelli, senior economist at RBC Capital Markets in New York. “We’re moving along here — there’s no better way to state it.”

The vast U.S. services sector accounts for some two-thirds of U.S. economic activity, and analysts say growth in this sector bodes well for consumer spending and overall employment.

The employment component of the ISM index rose slightly in March, while new orders jumped as well.

The Conference Board, a private research group, said the U.S. job market strengthened for a seventh straight month in March, with fewer Americans having trouble finding work.

Economists say job growth is essential for continued economic expansion, particularly as government stimulus spending starts to fade. And despite improvements in the labor market, the jobless rate remained at 9.7 percent in March for a third straight month.

Additional reporting by Corbett B. Daly and Lucia Mutikani in Washington and Camille Drummond, Ryan Vlastelica and Emily Flitter in New York; Editing by Chizu Nomiyama

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