WASHINGTON – U.S. service companies grew in February at the fastest pace in a year, buoyed by higher sales and more new orders. The gain suggests higher taxes have yet to slow consumer spending on services.
The Institute for Supply Management said Tuesday that its index of non-manufacturing activity rose to 56 in February from 55.2 in January. Any reading above 50 indicates expansion.
The report measures growth in industries that cover 90 percent of the work force, including retail, construction, health care and financial services.
Service firms also kept adding jobs last month, although at a slightly slower pace than the previous month. A gauge of hiring dipped slightly after hitting a nearly seven-year high in January.
Labor Department figures show solid hiring at service firms and construction companies, which the ISM includes in its measure of hiring. Those firms have added an average of 195,000 jobs from November through January.
The government will release the February employment report on Friday.
The increase in the service index also suggests consumers haven't pared spending after Social Security taxes rose two percentage points Jan. 1. The companies surveyed by the ISM cover many industries that are closely tied to consumer spending, such as retail, hotels and restaurants and arts and entertainment. The higher payroll taxes cost a household earning $50,000 about $1,000 a year; a household with two high-paid workers will have up to $4,500 less.
In January, consumers spent slightly more compared with the previous month, the government said last week. Most of the increase was in services, like utilities. They spent less on major purchases such as cars and appliances that signal confidence in the economy.
There have been signs that Americans are willing to keep opening their wallets, despite higher taxes. Auto sales rose slightly in February after jumping the previous month. And measures of consumer confidence rebounded after plunging at the end of last year.
The ISM reported last week that its separate index for manufacturing rose to its highest level since June 2011, driven higher by increases in new orders and production. That suggests manufacturing could boost growth this year after slumping in 2012.