Service companies growing faster

Associated Press photo by CHUCK BURTON -- Workers install a roof on a home under construction in Charlotte, N.C. The Institute for Supply Managment reported Tuesday that service companies, including construction, grew in February at the fastest pace in a year.
Associated Press photo by CHUCK BURTON -- Workers install a roof on a home under construction in Charlotte, N.C. The Institute for Supply Managment reported Tuesday that service companies, including construction, grew in February at the fastest pace in a year.

U.S. service companies grew in February at the fastest pace in a year, buoyed by higher sales, more new orders and solid job growth.

The gain suggests higher payroll taxes have yet to slow consumer spending on services.

A second economic report showed U.S. home prices jumped in January, a sign the housing market is gaining momentum as it nears the spring selling season.

Home prices rose 9.7 percent in January from a year ago, according to data released Tuesday by CoreLogic. That’s up from an 8.3 percent increase in December and the biggest annual gain since April 2006.

Prices rose in all states except Delaware and Illinois. And prices increased in 92 of the 100 largest metro areas, up from 87 in December.

Home prices also rose 0.7 percent in January from December. That’s a solid increase given that sales usually slow over the winter months.

Rising demand combined with fewer available homes is pushing up prices.

Nationwide, home values were still down more than 26 percent from their peak in April 2006 through January, CoreLogic said.

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 workforce, including retail, construction, health care and financial services. A solid recovery in the housing market helped drive the index hiring.

Service firms also kept adding jobs last month. A measure of service-sector hiring fell only slightly after reaching a nearly seven-year high in January.

“This survey does bode well for both activity and employment in the second quarter,” Paul Dales, an economist at Capital Economics, said in a note to clients.

Thirteen of the 18 industries covered by the ISM survey reported expansion, including construction, real estate, finance and insurance, and utilities.

The growth suggests that Americans are spending more despite an increase in Social Security taxes that took effect on 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.

And those companies expect consumers to keep spending. Order backlogs grew at the fastest pace in 20 months, a sign that many firms can’t keep up with rising sales. Stockpiles also rose strongly.

Anthony Nieves, the chair of the ISM’s survey committee, said the increases in both categories point to higher future sales. He said, “Companies are gearing up for more volume, more activity.”