Service sector continues at healthy level

U.S. service companies expanded at a healthy pace last month and stepped up hiring, more evidence that the economy is growing and adding jobs.

The Institute for Supply Management said yesterday that its index of nonmanufacturing activity dropped to 56 in March. That's down from February's 57.3, which was a 12-month high. 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. And a measure of employment rose to near a six-year high reached in January.

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 tomorrow'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."

There were some cautionary signs in the ISM report. A measure of new orders fell but still showed growth. A gauge of sales and other business activity also declined.

Still, rising consumer and business spending is boosting hotels, restaurants, retailers, entertainment and recreation firms, construction companies and financial services providers, the ISM said. Sixteen of the 18 industries tracked by the survey reported growth.