The services sector expanded in December at the fastest pace in five months, capping a record year for the biggest part of the economy.
The Institute for Supply Management said Wednesday that its index of non-manufacturing companies, which includes retailers, banks and airlines, rose to 63.1 from 61.3 in November.
With the best gain since July, the report noted that “many of members’ comments regarding business in December indicate continued positive business conditions, but with continued concern for inflationary pressures.”
The increase was the index’s third straight, and the average of 62.5 for 2004 is the highest since the survey began in 1997. Economists had expected a reading of 61 for December. A figure higher than 50 indicates the sector is expanding.
“I’m quite positive about the general direction of the economy,” said Paul O’Neill, the former Treasury secretary and an adviser to Blackstone Group LP, the manager of the world’s largest buyout fund. “We’re moving along in a range of 3.25 percent to 3.75 percent real growth, and I see that continuing.”
Orders accelerated and more companies said they were adding to inventories, according to the survey. A post-holiday surge in sales suggests consumers have the incomes and confidence to keep driving growth, economists said. Services account for more than two-thirds of the $11.8 trillion U.S. economy.
“Like their manufacturing counterparts, non-manufacturers ended 2004 on a strong note and are optimistic heading into 2005, though cost pressures continue to be the dominant concern,” said Stephen Stanley, chief economist at RBS Greenwich Capital.
The gauge of prices that companies paid for materials and services rose to 71.4 from 71.0. The measure of new orders increased to 60.3 from 59.9. The employment index slipped to 54.9 from 55.0. The index of order backlogs increased to 56.5 from 54.0, and the inventory gauge rose to 56 from 52.5.
