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The Boston Globe

Business

Growth in service firms reflects rising economy

WASHINGTON - US service companies expanded at a healthy pace last month and stepped up hiring, more evidence that the economy is growing and adding jobs.

The Institute for Supply Management said Wednesday that its index of nonmanufacturing activity dropped to 56 in March. That’s down from February’s 57.3, which was a 12-month high. Any reading above 50 indicates expansion.

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Economists said the slight decline was not troubling because the reading was still at a healthy level that points to growth. And a measure of employment rose to near a six-year high reached in January.

The trade group of purchasing managers surveys roughly 90 percent of US companies in all sectors outside of manufacturing. That includes retail, construction, financial services, health care, and hotels.

Separately, payroll processor ADP said the economy added 209,000 private-sector jobs in March. The job gains in January and February were also revised up. The ADP survey does not include government jobs.

The two reports were encouraging ahead of Friday’s government report on March job growth. Many economists expect that will show the fourth straight month of strong hiring.

“The [ISM] survey still suggests that domestic demand is contributing more to the recovery,’’ said Paul Dales, an economist at Capital Economics, in a note to clients. “This survey is still consistent with some decent rates of economic growth.’’

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The stock market, however, suffered its worst loss in a month. Traders focused on a weak bond auction in Spain that renewed fears about the European debt crisis. The Dow Jones industrial average closed down 124 points at 13,075.

There were some cautionary signs in the ISM report, too. A measure of new orders fell but still showed growth. A gauge of sales and other business activity also declined.

Still, rising consumer and business spending is boosting hotels, restaurants, retailers, entertainment and recreation firms, construction companies, and financial services providers, the ISM said. Sixteen of the 18 industries tracked by the survey reported growth.

Greater spending “reflects the increased confidence level of businesses and consumers,’’ said Anthony Nieves, chairman of the ISM’s services committee.

The economy has added an average of 245,000 jobs per month from December through February. That has pushed down the unemployment rate to 8.3 percent, the lowest in three years.

Economists are predicting that employers added 210,000 jobs in March.

More jobs have helped service companies grow. As hiring picks up, Americans are more willing to spend. Consumer spending jumped in February by the most in seven months, the government said last week.

Department stores, electronics chains, and other merchants are seeing more business. Retail sales increased in February by the most in four months. Department store sales rose in February by the most since November 2010.

Big job gains at service firms are necessary to reduce the unemployment rate. The service sector includes low-paying positions in retail and restaurants. But it also has higher-paying jobs in professions such as information technology, accounting, and financial services.

The economy expanded at an annual rate of 3 percent in the final three months of last year.

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