WASHINGTON - An index of U.S. service industries rose to a record level last month, and the value of factory orders in December increased to the highest level in three years, suggesting that the economy has been strengthening since the fourth quarter.
The Institute for Supply Management's index for non-manufacturing businesses increased to 65.7 from 58 in December, the biggest gain since the survey's inception in July 1997 and exceeding forecasts. Since April, the gauge has stayed above 50, signaling expansion.
Orders placed with manufacturers in December rose 1.1 percent to $342.4 billion, the Commerce Department reported. Increased manufacturing may raise demand for services.
The rise in orders suggests that the growth in the nation's gross domestic product might be greater this quarter than the 4 percent increase in the fourth quarter, economists said. Shippers, retailers, builders and other services account for 85 percent of the economy.
4.4% growth is forecast
The economy is forecast to grow at a 4.4 percent annual rate this quarter, according to the latest Blue Chip Economic Indicators survey of economists.
Tax cuts, low interest rates and cash from mortgage refinancing helped gross domestic product surge at an 8.2 percent pace in the third quarter.
"There is good momentum that is covering a wider range of industries," said Peter E. Kretzmer, a senior economist at Banc of America Securities LLC in New York.
"The reports continue to show solid growth. Capital spending is continuing to grow and broadening to other areas. We are looking for consumer spending [this quarter] to be a little stronger."
Economists in a Bloomberg News survey expected the institute's nonmanufacturing index to rise to 60 last month.
A 0.2 percent rise was forecast for December factory orders, according to a separate Bloomberg survey. The value of orders was the highest since the $342.4 billion in December 2000.
The purchasing managers group reported that its gauge of factory activity was at its highest since 1983. The index of manufacturing rose to 63.6, reflecting an increase in production.
The Commerce Department's factory orders report yesterday showed a 0.3 percent rise in bookings for durable goods, reflecting greater demand for business equipment.
Nondefense capital goods orders, a proxy for business investment, rose 0.8 percent in December.
Nondurables rise 2%
Orders rose 2 percent for nondurable goods, perhaps resulting from an increase in the value of petroleum. Factory stockpiles relative to sales fell to a record low of 1.26 months, suggesting that production will strengthen in coming months.
The index of new orders for nonmanufacturing companies rose to 64.9, the second highest on record, from 59.5 in December. Order backlogs eased to 53.5 from 55.5.
The index of prices paid - a measure of costs for purchased materials and services - fell to 59.7 from 60.3 in December. The inventory index dropped to 49.5 last month from 51.5. The employment index slipped to 53.4 from 54 in December.
"With order books firming, the need to get the products out the door quicker is building," said Joel Naroff, president of Naroff Economic Advisers in Holland, Pa.