Service sector, factory production, home sales improve
By CHRISTOPHER S. RUGABER and TALI ARBEL
WASHINGTON (AP) -- Employers holding out for more evidence that the U.S. economic recovery is finally taking hold got some April 5: America's service sector is growing quickly, and contracts for home sales are up.
The big question is whether the latest encouraging signs will help embolden companies to hire at a faster pace and bring down the unemployment rate.
Some economists and corporate executives say it could. And they say they no longer fear a double-dip recession -- in which the end of government stimulus money would tip the economy back into contraction.
Factories are producing more. Americans are willing to spend more. And the economy added 162,000 jobs last month, the most in nearly three years.
"It's much better news than we would have thought a few months ago," said Jennifer Lee, an economist at BMO Capital Markets.
The Institute for Supply Management, a trade group, said its service index rose to 55.4 in March from 53 in February. Any reading above 50 signals expansion. It was the strongest growth since ISM revised how it measured the service sector in January 2008.
The service sector is critically important because it accounts for about 80 percent of U.S. jobs, excluding farm workers. It includes jobs in areas like health care, retail and financial services.
Offering more optimism, the National Association of Realtors said the number of people who agreed to buy previously occupied homes rose 8.2 percent in February. The index is considered a signal of future sales activity.
Home sales had been sluggish during the winter, partly because shoppers felt less rushed after lawmakers extended the deadline to qualify for a tax credit. The new deadline is April 30.
Both reports suggest the broader economy is recovering, and employers are taking notice.
Recruiters report more interest among their clients in hiring permanent, full-time workers. Companies are starting to search for permanent hires in accounting, finance and engineering positions for which they had been relying on temporary help, said Jodi Chavez, senior vice president at Ajilon Professional Staffing.
In some cases, businesses are starting hiring plans at least a month earlier than they had expected, she said.
Ketchum, a public relations company, has also been encouraged by the improving economy and is looking to hire. It has 50 open positions in North America -- jobs that would raise the company payroll by 5 percent.
"We're definitely hiring right now," said Nick Ragone, a partner. "We've seen a pickup in our business."
More companies are requesting proposals for marketing and PR plans as the economy improves, he said.
The reports on the service sector and home sales contracts helped spark optimism on Wall Street. The Dow Jones industrial average gained 46 points for the day, and a rally since mid-February has the index closing in on 11,000.
Some analysts are less optimistic, though. They worry the economy will slow sharply over the next few months as government stimulus ends and other factors fade, such as a rebound in company inventories.
Gad Levanon, senior economist at the Conference Board, a business research group, noted that the economy has grown at about a 4 percent pace in the past nine months. Normally, that would translate into more hiring.
But Levanon said some companies remain concerned whether the recovery is sustainable. The Conference Board forecasts that growth will slow to 1 percent to 1.5 percent in the second half of this year.
And personal income isn't rising fast enough for people to keep spending more money, Levanon said. Consumer spending moved up 0.3 percent in February, but incomes stagnated. Most of the spending increase came only because people were saving less.
Small businesses also remain wary. The National Federation of Independent Business said last week that while small companies have stopped laying off workers, they remain hesitant to hire.
"The consumer's not really back," said Bill Dunkelberg, chief economist at the NFIB. "If you have customers, many other problems get solved."
AP Real Estate Writer Alan Zibel contributed to this report.