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Service sector surges
Biggest component of U.S. economy grows stronger in October, beating Wall Street forecasts.
November 5, 2003: 11:46 AM EST

NEW YORK (CNN/Money) - Activity in the U.S. service sector accelerated in October, the nation's purchasing managers said Wednesday, beating analysts' expectations.

The Institute for Supply Management's index of non-manufacturing activity came in at 64.7, compared with 63.3 in September. Any reading above 50 indicates growth in the sector. Economists, on average, expected a reading of 63.4, according to

Separately, the Commerce Department said orders for goods made in U.S. factories rose 0.5 percent in September.

U.S. stock prices ignored the reports and fell in midday trading. Treasury bond prices also fell.

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The service sector is the economy's biggest employer, and service activity -- including banking, tourism, entertainment and more -- makes up about 80 percent of the total economy.

After a stunning burst of consumer spending in the third quarter, retail and automobile sales have slowed in the fourth quarter, but Wednesday's ISM report indicates consumers haven't stopped spending on health care, entertainment, tourism and other services.

The ISM's "new orders" index jumped to 64.4 from 59.9, and its employment index rose to 52.9 from 49.1 -- the highest level since November 2000.

Some economists noted that non-farm payrolls grew by 208,000 jobs in November 2000, the last time the ISM's service-sector employment index was so strong, but few are forecasting that such strong job growth is coming anytime soon.

In fact, the ISM services employment index was equally strong in August, September and October of 2000, months that saw significantly smaller job gains, and the labor market soon worsened, along with the broader economy, which sank into recession in March 2001.


The Labor Department is scheduled to report October unemployment and payroll figures on Friday. Economists, on average, believe the unemployment rate remained at 6.1 percent and that non-farm payrolls grew by 65,000 jobs, according to

On Monday, the ISM said its manufacturing index, which is more closely watched than the non-manufacturing index, was also stronger than expected in October.

Though the non-manufacturing ISM index is a younger survey, with much less of a track record than the manufacturing survey, it still points to an encouraging improvement in business confidence, according to Lehman Brothers chief economist Ethan Harris.

"The main thing holding back the economy in the past year and a half has been a lack of business confidence, and now we're seeing these surveys with a fairly optimistic take on the economy," Harris said. "The non-manufacturing survey certainly reflects the general increase in confidence, and that's a self-fulfilling thing."  Top of page

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