U.S. service sector jumps
Purchasing managers' index of non-manufacturing activity beats forecasts.
March 5, 2002: 12:48 p.m. ET
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NEW YORK (CNN/Money) - Service-sector activity in the United States surged in February, the nation's purchasing managers said Tuesday, the latest sign the world's biggest economy is set to recover from the first recession in a decade.
The Institute of Supply Management (ISM) said its index of non-manufacturing business activity jumped to 58.7 in February from 49.6 in January. Economists surveyed by Briefing.com expected an index reading of 51.0.
"Not only is the manufacturing sector coming back, but the non-manufacturing portion of the economy looks like it is already there," said Joel Naroff, chief economist at Naroff Economic Advisors.
It was the highest reading since the index hit 59.5 percent in November 2000. A reading above 50 indicates expansion in the sector; one below that points to contraction.
On Wall Street, stock prices surged after the number was announced, reversing early losses, but were mixed in afternoon trading. Treasury bond prices fell.
The stock market's recent two-day rally started Friday after the ISM report on manufacturing in February showed growth, ending an 18-month slump in that sector and raising hopes for a swift recovery from a recession that many economists say began in March 2001.
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To keep consumers spending and set the stage for a recovery, the Federal Reserve cut its target for short-term interest rates 11 times in 2001. The central held rates steady in January, and Fed Chairman Alan Greenspan recently told Congress he thought a recovery was on the way, though it could be a sluggish one.
"Mr. Greenspan's caution last week now seems extremely dated," said Ian Shepherdson, chief economist at High Frequency Economics Ltd.
Other economists, however, point to high levels of consumer debt, rising unemployment, fears surrounding the collapse of Enron Corp., sluggish corporate profits and other factors as headwinds that could slow the recovery down.
In its report, the ISM, formerly the National Association of Purchasing Management, said an index of new orders in the service industry jumped to 57.3, the highest level since November 2000, from 49.4 in January. And service inventories rose to 51.5 from 47.5, the first gain in 16 months.
But the employment index fell to 43.6 in February from 44.5 in January, reflecting in part the lagging nature of unemployment. A leading outplacement firm said Tuesday that the number of job-cut announcements fell in February, but the labor market was still a long way from recovery. That's because companies usually don't start hiring until they're convinced a rebound is well underway.
The ISM surveys about 370 purchasing and supply executives for its monthly service sector report. 
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