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  • Associated Press A construction worker works on a high-rise condominium project in Miami on Monday. On Wednesday, the Institute for Supply Management reported its service index rose from 55.3 to 59.8 in September, the highest since 2005.

Thursday, October 05, 2017 1:00 am

Service growth hits 12-year high

Index expansion in September points to stronger economy

JOSH BOAK | Associated Press

WASHINGTON – U.S. services companies in September expanded at the strongest rate in a dozen years as a measure for new orders climbed sharply.

The Institute for Supply Management said Wednesday that its services index rose last month to 59.8 from 55.3 in August. The September reading was the highest since August 2005. Any reading above 50 signals growth. The services sector has expanded 93 straight months.

The gains point to a potentially faster economic growth – which could help to spur more hiring and stronger pay raises. The U.S. economy has gone through a steady but slow recovery from the Great Recession that entered its ninth year this summer. The index suggests that hurricanes Harvey and Irma disrupted many businesses without derailing overall growth.

“Very strong report, very surprising it came in at such as high level,” said Anthony Nieves, chair of the ISM's non-manufacturing business survey committee. “Business conditions look good, even with the recent weather-related catastrophic events.”

September's reading corresponds with annualized economic growth of 4.2 percent, roughly double the pace of the average gains in the recovery. Many economists – including officials with the Federal Reserve – expect growth to stay near to that 2 percent level in the coming years.

New orders and business activity both rose last month, while a measure for employment improved slightly. Private service-sector workers account for more than 70 percent of American jobs – making this a valuable sign that the government's jobs report out Friday will show that hiring was positive in September.

Fifteen services industries reported growth, including retail, real estate, health care and social assistance and lodging and food services. But two sectors contracted last month: mining and entertainment.