Service sector in surprise rebound

NEW YORK (CNNMoney.com) -- Encouraging news for the slumping U.S. economy came Monday as a key survey of non-manufacturing business executives showed unexpected growth in the service sector in April.

The Institute for Supply Management's (ISM) non-manufacturing index rose to a reading of 52 from 49.6 in March. Economists were expecting a reading of 49.5, according to a consensus compiled by Briefing.com.

A reading above 50 indicates growth in the sector.

Prior to January's report, the non-manufacturing index was only based on business activity, but it now equally measures business, orders, employment and supplier deliveries. This is the first time since the index's face lift that it registered a positive reading.

The reading for business activity in the service sector showed expansion but fell to 50.9 in April from 54.2 in March.

The service sector encompasses the retail, transportation and health care sectors. It also includes sectors that have been hit hard by problems in the economy, including finance, real estate and construction.

Sector adds jobs: The report also showed encouraging non-manufacturing labor growth. After three consecutive months of contraction, the service sector employment index rose 3.9 points to 50.8.

The ISM report showed 22% of service sector employers were adding staff, up from the 14% doing so in March.

Last Thursday, the more closely watched ISM manufacturing employment reading fell 3.8 points to a 45.4 reading for April, the lowest level since May 2003, showing continued labor contraction in that sector.

t has been the service sector that has provided most of the job growth in recent years as factories closed or cut employment. The bump in the employment reading is encouraging news after the Labor Department's April employment report released Friday that showed employers trimmed 20,000 jobs in the month.

Prices continue to surge: The encouraging employment news comes despite another big rise in the part of the index that gauges prices paid by businesses in the service sector. The prices index for materials and services rose to 72.1 in April from 70.8 in March.

"The inflationary pressures of rising fuel, energy and commodity prices are of major concern for members," said the ISM's service sector survey chair Anthony Nieves in a statement.

Still, new orders grew for the second straight month, registering a reading of 50.1 on the index.