Service-sector activity, factory orders up from March

WASHINGTON -- America's service sector expanded with gusto and the country's factories saw orders shoot up by the largest amount in nearly a year, fresh evidence the economy was pushing ahead at a good clip into the spring.

The Institute for Supply Management reported Wednesday that its index of service-sector activity stood at 63 in April, up from a reading of 60.5 in March. A reading of 50 and above points to a growing service sector, while a figure below 50 signals contraction. April's showing was better than analysts expected; they were forecasting a reading of 59.2.

"Services industries kicked off the second quarter with very impressive momentum," said Brian Bethune, economist at Global Insight.

Fourteen of the 17 service sectors that the institute's index measures showed increased activity in April.

In a second report, the Commerce Department said that new bookings placed with manufacturers jumped by 4.2 percent in March, a notable pickup from the 0.4 percent increase registered in February.

The 4.2 percent gain was the best showing since May 2005, when factory orders rose by the same amount. The performance was far better than the 1.5 percent rise economists were forecasting.

The latest snapshot of factory activity showed that the strength seen in March was fairly broad-based. Orders rose for a wide variety of "durable" goods, including commercial aircraft, machinery, metals, cars and computers. Demand also picked up for "nondurables," including food products and apparel.

"This robust report suggests that the vigorous pace of factory activity ... may not moderate significantly in the near term," said Michelle Girard, an analyst at RBS Greenwich Capital.

Orders placed for all durable goods -- costly manufactured products expected to last at least three years -- went up by 6.5 percent in March. That was up from 3.5 percent in February and was the largest increase since May 2005.

New bookings for all nondurable items increased by 1.5 percent in March, a turnaround from the 3.1 percent drop reported for February.

Wednesday's factory report comes on the heels of other data showing factories were humming heading into the spring.

The Institute for Supply Management reported Monday that manufacturing activity grew briskly in April. The group's manufacturing index jumped to 57.3 in April, from 55.2 in March, the strongest showing in six months.

So far, the economy is carrying strong momentum despite rising energy prices and interest rates.

For the first quarter, the economy grew at a 4.8 percent pace, the fastest in 2 1/2 years, the government reported last week. A big pickup in consumer spending figured prominently in the strong showing.

In the current April-to-June quarter, economic growth is expected to slow to the 3 percent range, which would still be healthy, as consumers moderate their spending.

With oil and gasoline prices surging, some economists fret that inflation could flare up. And some recent inflation readings have suggested as much.

To thwart inflation, the Federal Reserve is expected to boost a key interest rate to 5 percent at its meeting next Wednesday.

After May, many economists believe the Fed will move to the sidelines for a while to assess how its rate increases are affecting economic activity. Others, however, predict the Fed will be forced to push up its key rate to 5.50 percent in the months ahead to prevent inflation from taking off.