U.S. service companies expanded at a healthy pace last month and stepped up hiring, more evidence the economy is growing and adding jobs.
The Institute for Supply Management said Wednesday its index of non-manufacturing activity dropped to 56 in March. That’s down from February’s 57.3, which was a 12-month high. But any reading above 50 indicates expansion. Economists said the slight decline wasn’t troubling because the reading was still at a healthy level that points to growth.
The trade group of purchasing managers surveys roughly 90 percent of U.S. 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,” Paul Dales, an economist at Capital Economics, said in a note to clients. “This survey is still consistent with some decent rates of economic growth.”
Wall Street, however, appeared more focused on a weak bond auction in Spain that renewed fears about the European debt crisis.
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.
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.
Still, the hiring gains have not resulted in bigger paychecks for most people. Income grew just 0.2 percent last month, matching January’s weak increase. And when taking inflation into account, income after taxes fell for a second straight month.