Service sector grows for 1st time in 13 months

NEW YORK — The U.S. service sector grew in September for the first time in 13 months, an encouraging sign for the fledgling economic recovery, although jobs remain scarce.

The Institute for Supply Management said Monday that its service index hit 50.9 last month, up from 48.4 in August. Analysts polled by Thomson Reuters had expected a reading of 50, the dividing line between growth and contraction.

The index, which tracks more than 80 percent of the country’s economic activity, including hospitals, retailers, financial services companies and truckers, hadn’t grown since August 2008.

The good news:

The new orders index, an indicator of future activity, jumped to 54.2 in September from 49.9 a month before, the first growth reading in a year.

Businesses’ backlogs of orders grew for the first time in 14 months.

Present business activity rose to 55.1 from 51.3 in August, growing for the second straight month after 10 straight contractions.

On Wall Street, the ISM report and a banking industry upgrade from Goldman Sachs helped boost the markets. The Dow Jones industrial average added about 70 points in early afternoon trading, and broader indices also rose.

The ISM report is based on a survey of the institute’s members in 18 industries and covers indicators such as new orders, employment and inventories. Five industries grew last month: utilities, health care, retail, construction and wholesale trade. And while activity is rising, only three areas reported an increase in jobs: health care, support services for companies and educational services.

Overall, service-sector employment shrank in September, though at a slightly slower pace than in August. The survey’s reading of 44.3, up from 43.5, was the 20th month of contraction in 21 months.

“Better, but still terrible,” Ian Shepherdson, chief U.S. economist for High Frequency Economics, wrote in a research note.

Other analysts said any hiring tends to lag increased production.

“We won’t likely see increased hiring until January,” even if business and new orders keep rising this fall, said Bank of America Merrill Lynch economist Ethan Harris.

“Businesses are more reluctant than in the past to start the hiring process. They really do take the ‘prove it to me’ attitude” that the recession is over and demand is increasing, he said.